Interregionalism and the Trump Disruption
The Transatlantic Trade and Investment Partnership: A Postmortem
Andreas Falke
Introduction
The Transatlantic Trade and Investment Partnership (TTIP) is clearly a major interregional project, although after the election of Donald Trump and the abrupt changes in American trade policy, its current status is in doubt. As a matter of fact, a strong argument can be made that it is defunct, at least as long as the current economic nationalism of the Trump administration prevails. But as a project, it clearly fits into the category of hybrid interregionalism, which establishes a relation between a regional organization, the EU, and a single power, the United States (Gardini and Malamud, 2015, 6; Grimmel and Rüland, 2015, 42).
Interregionalism is a multifaceted phenomenon that has undergone significant changes and elaborations generating a highly differentiated typology (Hänggi, 2006, 31–62). TTIP does not fit into the ideal type of the relationship between a regional organization in one region and another organization or grouping in another, a paradigm set by the EU and ASEAN, and dubbed as “old interregionalism” by Hänggi. The “new interregionalism” is characterized by the proliferation of hybrid forms, or borderline cases, a set of cases that Hänggi (2006, 40–41) calls interregional relations in a wider sense or quasi-interregionalism. Relations between a regional organization and a third state in another region are quite prominently represented in the latter category. Thus, the fact that the new interregionalism does not follow the strict EU-ASEAN model should not distract from analyzing the relations between a regional organization and a third state from an interregional perspective since this borderline model has increased most rapidly. As a matter fact, it is particularly salient in the case where one region is dominated by a major power as in North America, Northeast Asia, and South Asia. A major power such as the United States may not submit to membership in a regional organization and leave to such an organization the representation of its interests. The triad North America, Europe, and East Asia is actually characterized by the prevalence of interregional relationships in a wider sense, that is, between a regional organization and a third state (Hänggi, 2006, 41–43, 52–53).
More important than the formal classification in our case is how the transatlantic project called TTIP should be rated in terms of geographical situation, structure, function, and issue areas covered. Other important aspects are the underlying intensity of interaction, the degree of institutionalization, the expected performance, and the implications for global governance.
On all these criteria, TTIP stands apart from most interregional projects, be they narrow or wide. It covers large areas of Europe and North America, its structure is determined by deeply ingrained models of economic diplomacy, its function is to create a rules-based system of economic relations that goes far beyond agenda-setting or solving limited problems through temporary ad hoc solutions. The issue area is clearly delineated and not a fuzzy basket of interchangeable and varying issues. It is based on intense interaction, on the elite political as well as on the bureaucratic agency level. A high degree of institutionalization is assured through a body of complex rules and regulation that span a broad theme of regulatory issues from consumer and food regulation to environmental rules and new technologies, and mechanisms to solve conflicts, deal with violations, and discuss and implement the extensions and modernization of rules.
In terms of performance, it is expected to stimulate (although the degree may be debatable), and to shape and define transatlantic markets in almost all sectors. The impact on global governance is significant: If concluded, it would have a major impact on the world trading system, and the rules and procedures of the World Trade Organization (WTO) and may prompt an adjustment of WTO-rules. In addition, it would influence trade integration and the position of major emerging market countries in Asia. In short, TTIP is no mere dialogue forum which usually formulates common position or papers over divergences, but an attempt to change the geo-economic setup of the world economy, with the possibility of deep reverberation on political relations. In this sense, it would create a much more robust and permanent interrelationship between two major regions. But because its ambitions are high, it is as susceptible to failure, dilution, or negotiating stalemate.
Its purpose is in essence to create a transatlantic economic space by virtue of concluding a new generation free trade agreement (FTA). It can be seen through the same prism as regionalization processes, which followed the fall of communism and the rise of emerging markets, that is, as an attempt to manage globalization in a broader setting. In this sense it has the potential to regain a level of political control that nation states have lost in the wake of the globalization process (Koschut, 2017, 8). TTIP can be analyzed from a liberal, a neorealist, and from a constructivist perspective. It clearly serves to manage interdependence, it balances against regional challenges from other regions, and it serves to help identity formation through interregional interaction (Hänggi, 2000).
With regard to theory, this chapter holds that the neorealist perspective is the most fruitful approach (but not the only one) to understand TTIP, as the project is clearly designed to counter the rise of China as the major competitor and challenger not only of the United States, but of the transatlantic axis between the United States and the EU which still represents the fulcrum of the world economy. The United States as well as the EU can be understood as status quo powers that make a strategic choice to counter threat by revisionist power, even if major theatre of threat is East Asia. The purpose is defensive economic security (Kupchan, 2006, 137). In this sense, TTIP has a geo-economic function that reacts to changes in the world economy, with which shifts in power are associated. In addition, it can be claimed that the other two purposes, managing interdependence and helping with identity formation are also present as motivators, but are subservient to balancing challenges from a rising region that may become dominated by a major power.
Whatever the geo-economic aspect of TTIP, its pursuit has also represented an intensification of transatlantic diplomacy, based on interactions of both sides’ top political leaders carried out at annual summit meetings. Summit meetings were crucial for developing the idea and giving it the necessary legitimacy and structure. The idea of an FTA between the two sides is not entirely new. In many ways TTIP appears as a project whose time had come (Falke, 2017a, 193–208). It would be the culmination of a long trend toward creating closer links between the United States and the EU and provide an opportunity to put the relationship on a more robust and formal rule-based footing after the fallout over the Iraq war and the unilateralism of the second Bush administration.
However, the election of Donald Trump and the shift of parts of the US electorate against trade liberalization have changed the context of the project. Trump withdrew from the Trans-pacific Partnership Agreement (TPP), shortly after assuming office. TPP was concluded by the Obama administration and was conceived as a complement to TTIP. Trump also questioned the continued adherence of the United States to the North American Free Trade Agreement (NAFTA). These political changes led to the preliminary suspension of TTIP negotiations, which can be equated with the failure of the negotiations. Regional integration and interregionalism is low on the Trump administration’s agenda. For the Trump administration, righting bilateral trade deficits and the underlying allegedly disadvantageous or ineffective rules has priority. The approach of the administration geared toward exerting maximum power in bilateral relation (Falke, 2017c; Alden, 2017, 21–52).
But also on the European side enthusiasm for this project has been waning, particularly in Germany, where societal opposition arose against creating common standards, which were understood to serve primarily US corporate interests. Primarily left of center and green parties as well as civil society groups raised fears that TTIP would endanger long-held European standards guarding consumer, environmental, and labor interests. Interregionalism on the European side, it appears, would only work if European standards became the reference point for an interregional agreement (Falke, 2017b, 339–344).
This chapter explores the implications for TTIP and interregionalism more broadly of the rise of the Trump administration and its rejection of trade liberalization on the one hand, and of the EU’s uncompromising stands on European standards for TTIP and interregionalism on the other. The consequences in the transatlantic arena in particular, and the chances for interregional compacts in general will be spelled out.
TTIP: A Project with a Long Prologue
The debate about the need for close transatlantic economic relations did not date back to 2011 when TTIP was finally proposed. It dates back to the early 1990s when decision-makers on both sides of the Atlantic saw a need for closer cooperation outside the security policy field (Ries, 2014, 1–12). The idea behind the initial efforts was that transatlantic interregionalism was mostly practiced in the military and security field, heavily managed by NATO and based on uncontested US hegemony. Closer economic interregional cooperation was to compensate for the declining relevance of the military alliance and the erosion of liberal internationalism in the United States. For the post-9/11 context, discussions of FTA could serve as a tool to tame the strategic dissent about the response to the Iraq war and US unilateralism (Kupchan, 2006, 131–148). The Transatlantic Declaration of 1990, passed at the first post-Cold War summit, fell well short of proposing a formal arrangement between the United States and the EU. But it crucially acknowledged the EU as the preferred regional actor and primary partner for a transatlantic dialogue with the United States. It established the principle that EU-US summits would take place annually as the political highpoint of transatlantic relations, with the president of the European Council, the president of the European Commission, and the US president as the principals. While the nature of the dialogue lacked a specific focus, the declaration wins its historic significance as it confers actor quality on the EU, which stands in sharp contrast to the Trump administration’s attempt to deny just this status to the EU.
The next initiative was the The New Transatlantic Agenda (1995), which saw the EU and the United States as principal forces in promoting peace and democracy in Europe, in working together on global challenges such as climate change and in helping to strengthen the global trading system under the newly established WTO. While the focus was here on the multilateral system, the document also stressed the need to establish closer bilateral links, which could be interpreted as a preliminary step for exploring an FTA. In 1998 then EU trade commissioner Sir Leon Brittan and German Foreign Minister Klaus Kinkel proposed a New Transatlantic Market Place initiative, which had most of the features of an FTA or what came to be known as a Transatlantic Free Trade Agreement (TAFTA). It proposed the elimination of all tariffs, free trade in services, and critically a reduction of agricultural subsidies, a proposal that was not acceptable to France (Konold, 2015, 111–158). Because of French resistance, the final result was more modest and deflected action toward establishing regulatory cooperation (mutual recognition, alignment of product standards, consumer product safety), a project called the Transatlantic Economic Partnership, which remained vague on the scope of regulatory cooperation.
Nine years later a Transatlantic Economic Council, established in 2007, was to lead to a more structured dialogue on regulatory issues by involving business and consumer organizations. In the end only very few concrete results were achieved with the exception of a pledge to introduce more transparency into domestic rulemaking and equivalency agreement on organic food. Only in 2011 did the United States and the EU finally establish a working group tasked to come up with a concrete proposal for a free trade agreement with objective to increase economic growth on both sides of the Atlantic. A formal mandate to start negotiations was agreed during the EU-US summit in 2013 between President Obama, Commission President Barroso, and Council President Van Rompuy. EU member states agreed to a formal negotiating mandate for the Commission (McKinney, 2014, 85–100).
This historical account poses the question why it took almost 23 years from the Transatlantic Declaration to the 2013 summit agreement to begin formal negotiations. One answer is that the political support for such agreement in the United States was lukewarm at best throughout the first decade of the 21st century. For US decision-makers a TAFTA initially appeared as too big as it would efface or hamper the multilateral system under the WTO and its expansion. The United States after the political difficult passage of NAFTA—a majority of Democratic congressmen opposed the agreement—saw trade agreements as too deep and too intrusive to societal values and regulation, which became apparent in the violent protest at the WTO meeting in Seattle (“battle of Seattle”) in 1999. The Clinton administration was hesitant to alienate the surging union-dominated left wing of the Democratic party by starting another trade negotiation so soon after the NAFTA battle (Ries, 2014, 2). On the European side the unresolved issues of the Common Agricultural Policy made EU decision-makers as well as national governments equally hesitant about starting negotiations that would have put size and scope of EU agricultural subsidies on the agenda (Konold, 2014, 204–236).
Geo-Economic Aspects of TTIP
Given the reluctance on the United States and the EU side about seriously pursuing a comprehensive trade and investment agreement, which factors changed in contrast to the 1990s and the first decade of the 21st century? One factor was clearly that the WTO negotiations, the so-called Doha-development Round, were stuck, if not comatose. Emerging market countries such Brazil, India, and Argentina refused to relinquish their free-rider status. In particular, these countries feared broad industrial tariff liberalization given China’s emergence as a major manufacturing hub. Developing and least developed countries expected benefits in terms of substantive supports, that is, trade-related contributions from developed countries, similar to aid payments. Developing and emerging market countries also showed little interest in positive regulatory commitments in terms of more rule-based commerce and investment, stricter regulatory standards on labor and the environment, and deepened intellectual property rights protection, all issues prominent on the wish list of the developed world. Developed country, particularly the United States and the EU, were only willing to make modest concession on agricultural supports. And on the political-tactical level, China organized a new coalition of developing and emerging market countries that helped China to hide behind countries that were much less successful on world markets in the new millennium. By making common cause with developing countries, and classifying itself as such, China indicated that it was under no obligation to offer concession beyond its commitment made when it joined the WTO in 2001 (Wolfe, 2015, 7–28).
For decision-makers in Washington the lesson from the failure of the Doha Round clearly was that the WTO would not be able to serve as the primary arena for trade liberalization. For the Obama administration to bring forward more trade liberalization and expand the rules of the global trading system, free trade agreements with partners other than emerging market countries and China appeared as the only viable alternative. Accepting gridlock at the WTO as the default position would have left the Obama administration without an alternative and without any tangible legacy in terms of market opening (Falke, 2017a, 195).
This strategic decision coincided with the assessment that China would be the primary geo-economic and security challenger of the United States in the future, first in the East Asian theatre, eventually on a global scale. This assessment encouraged President Obama and his trade policy team to pursue a systematic pivot to Asia, as the policy came to be known in the second term of the Obama administration (Dyer, 2014, 249–275). For trade policy specifically, it meant to counter or contain China’s economic rise in terms of formulating rules that would accelerate China’s transition to a market economy along western concepts. China’s rise in the world economy was indeed astonishing and coincided with its entry into the world trading system, crowned by its WTO-accession in 2001. Its share of global merchandise exports rose from 1.8% in 1990 to 11.5% in 2012. The US trade deficit with China in goods ballooned from $83 billions in 2000 to 367 billion in 2015. Sixty percent of the US total deficit is with China. (Morrison, 2017, 9–10; Atkinson et al., 2017, 12). Increasingly, China is shifting its exports from light manufacturing to higher-value added products. The most pressing issue on the agenda is to stop China’s innovation mercantilism which is underpinned by massive subsidies (low-interest loans, cheap energy, and free land acquisition) and privileges for state-owned enterprises combined with discriminatory policies vis-à-vis western companies and the forced transfer of intellectual property rights, trade secrets, and proprietary know-how to Chinese firms (Atkinson et al., 2017, 14–16).
For the Obama administration the close relationship between businesses, the state and the party apparatus in China defined an economic system that would eventually determine the rules of the world economy in its most innovative sectors:
But as we speak, China wants to write the rules for the world’s fastest-growing region. . . . That would put our workers and our businesses at a disadvantage. Why would we let that happen? We should write those rules. We should level the playing field. (Obama, 2015)
The principal mechanism used by the Obama administration was a free trade agreement with 11 pacific nations,1 the TPP, which deliberately excluded China, albeit it left a tactical door open for China’s later participation. TPP had clear features directed against the Chinese economic model of state capitalism, putting a heavy emphasis on disciplines against state-owned enterprises, against discriminatory investment restrictions, and violations of intellectual property rights. In addition, it featured provision to safeguard labor and environmental rights. TPP was to serve as a first stepping stone to establish a counter model to Chinese state capitalism. The TPP was an economic block building exercise to contain the Chinese economic model (Hamilton, 2014, 81–97).
The pivot to Asia raised a question for the Obama administration regarding Europe: How would the EU fit into this geo-economic design? Was the EU relevant? Could it be ignored or could the EU actually become an ally in this project? Since joint, coordinated action against China was virtually excluded as an option, and the WTO was considered as too difficult as a staging ground for an alliance against China, alternative instruments were called for. The Obama administration came to the conclusion that a strategic economic partnership with Europe would be the best corollary for its “Pacific” strategy against China (Davis, 2012, 180–83 and 282–83; Falke, 2017a, 197). In view of growing Chinese influence on the world trading system, the Obama administration revived the idea of a free trade agreement with the EU, and found a very positive response from EU policy-makers, particularly in the Commission and the European Council, and most national governments. This positive response was supported by the assessment on part of the EU that an FTA with the United States could serve as a spur to growth of sluggish EU economies after the Euro and the financial crisis (European Commission, 2013).
TTIP as Transatlantic Interregionalism
The revival of the idea of a transatlantic trade agreement built on a new assessment of the strategic value of the weight and of the close integration of the transatlantic economy. The transatlantic economy represents 45% of world GDP, 25% of world merchandise exports, and almost 65% of outward global foreign direct investment (Hamilton and Quinlan, 2016, 13). In addition, 17% of US exports went to the EU, as well as 17% of EU export went to the United States, in both cases the partner country was a more important export destination than China (Hamilton and Quinlan, 2015, IX). In addition, intra-firm trade is the dominant mode of trade between both sides, with 61% of EU export falling in this category. Even more important were the role of affiliates of big European and US companies in the markets of the partner country. The turnover of affiliates of US companies in Europe and affiliates of European companies in the United States is more than three times the size of the respective export volumes. In addition, companies on both sides can count on reliable legal systems and mechanism for the protection of intellectual property rights. Many observers thought that the degree of integration at the company level would make it easier to dismantle trade barriers (Hamilton and Quinlan, 2015, 9). While tariffs with the exception of agriculture are fairly low—industrial tariffs are on average only 4.2% on the EU side and 3.2% of the US side (Ries, 2014, 2)—dismantling regulatory barriers, particularly product standards, appeared to be the most promising area for liberalization.
Furthermore, regulatory cooperation would not only create better market access, but create a framework of positive regulation that would safeguard the interests of the most innovative industries on both sides of the Atlantic (standards for e-mobility, energy and environmental technology, biotechnology, advanced health care, nanotechnology, artificial intelligence, and robotics). In addition, policy-makers had ambitious, albeit not always compatible expectations regarding common standards for consumer, environmental, food safety, and labor regulation. This was true even though these were areas where NGO skepticism and resistance was high on the European side. If both sides pursued a strategy of building a coherent regulatory framework for the transatlantic economy, an FTA as an interregional regulatory block could crucially affect the future course of global economic governance (Chase and Pelkmans, 2015).
Given the stagnation in the WTO, the persistence of slow growth, and the challenges posed by China, both sides came to see TTIP as useful device to counter these challenges. Now TTIP was not too small. Both sides saw the gains in pursuing of regulatory cooperation, and even already low tariffs would now be seen as worth removing as the trade volume affected was so large. And TTIP was not too big anymore given the rise of China and other emerging market countries. It would balance the rise of competitors in other regions, chiefly China in Asia. This assessment would vindicate a neorealist interpretation of TTIP in a geo-economic context. But in essence TTIP was more: it could also be understood as an identity-building exercise that would in words of one of the chief supporters create “a more strategic, dynamic and holistic EU-US relationship” (Hamilton, 2014, XI). TTIP would provide a platform for addressing interregional and global challenges. Both sides could exploit the fact that the EU and US economies are still the fulcrum of the world economy, given a joint EU-US effort to set standards that would reflect core western norms.
The United States had another incentive to include the EU in its strategy: to make a clear statement that the pivot to Asia is not a pivot away from Europe. Quite to the contrary, TTIP was to underline the US commitment to Europe and to reenergize the transatlantic relationship and instill a new sense of purpose, particularly after transatlantic solidarity was challenged by the Russian annexation of Crimea and its military intervention in Eastern Ukraine. On a political level, TTIP expressed the continued commitment of the United States to Europe. However, TTIP would not become an “economic NATO,” but a much more balanced bargain, that would reflect the equal weight of both partners, and not the weight of the United States as a military superpower.
In conjunction with TPP, TTIP was conceived as an alternative to models of state capitalism, driven by US considerations of the need to balance China as a geo-economic revisionist power. With the EU on board, a much more convincing argument could be made to persuade other democratic emerging countries, particularly Brazil, Mexico, and possibly India, to associate with the West and underwrite the norms of a rule-based western order. With TTIP in place, it was conceivable to think about steps of integrating TTIP with NAFTA, and create a North American-European economic space that could build on regional integration in North America (Lammert and Vormann, 2017, 113–126.) In a long-term perspective, both sides also had good reasons to believe that TTIP had the potential to unlock the Doha Round and energize the multilateral system. The interregional compact was supposed to serve as a template or stepping stone for a multilateral bargain. The core was an interregional compact.
One objection to FTAs and the type of interregionalism pursued by TTIP is that such arrangements, just as most types of FTA-based regionalism, are discriminatory. In economic terms the assumption is that FTAs are a more trade diverting than trade creating tool, leading to the growth of intraregional trade at the expense of interregional trade. On the political level a threat to divide the world into blocks has been posited as another risk. These risks seem to be greatly overrated (Archarya, 2014, 90). Intraregional trade has grown in tandem with interregional trade. One of the reasons is that increasingly open forms of regionalism, that is, non-exclusionary regionalism, have become the norm. Non-exclusionary regionalism is due to the fact that it is becoming more and more difficult exclude third parties under formal as well as informal regulatory liberalization of trade barriers in a global economy that is characterized by value-chains, even if exclusion may have been the initial goal of policy-makers and interest group advocating (inter) regional integration. FTAs have the potential of innovation, particularly in intellectual property rights, services, investment, and environmental rules. Regional arrangement can greatly ease the liberalization movement of capital, services, technology, and people (Acharya, 2014, 92).
TTIP in the end may resemble more the market driven transnational production networks, prevalent in Asia which define natural economic territories in which factors of production can be derived from or located within various territories and rely less on formal intergovernmental mechanism than for instance in the EU. TTIP would resemble much less than the EU’s centralized and legalistic model of cooperation (Acharya, 2014, 92–93, 105). It would be in the language of US analysts a flexible living agreement. Whether this would be agreeable to the EU, is an open question. However, this question maybe mute with the advent of the Trump administration, which is questioning the merits of FTAs and, in a wave of economic nationalism, is focusing on eliminating the supposed inequities of bilateral trade deficits. Trump would then not only spell the end of regionalism (NAFTA), but also of interregionalism.
The Trump Disruption and the Future of Interregionalism in the Transatlantic Arena
The Trump administration represents a major departure from the US trade policy tradition that relied on the preservation and expansion of a rule-based trading order. As a candidate, Donald Trump built his campaign on a stringent critique of US trade agreements and laid out a strategy of an aggressive economic nationalism that would target Latin America, Europe as well as Asia. In his appeal to win white working class votes in rust-belt swing states, Trump claimed that free trade agreements and the uncontrolled rise of China had devastated the US industrial heart land and led to massive job losses. Trade agreements were characterized as zero-sum games, and bilateral trade deficits were depicted as the root cause of job losses (Falke, 2017b, 323–328). For the future of US trade policy and transatlantic interregionalism, it is not totally irrelevant that the anti-trade sentiment is deeply shared by the base of the Democratic Party as the popularity of Bernie Sanders’ positions on trade during the primary campaign showed (Drezner, 2016). A change of administration may not herald a reversal of now deeply held skepticism about trade liberalization.
In the election campaign, Trump (as well as Sanders) targeted particularly NAFTA and the TPP. He called NAFTA repeatedly the “worst trade agreement in history” and vowed to terminate the TPP if elected. During the campaign, he also advocated to impose unilateral tariffs of 35% and 45% on Mexico and China respectively. He claimed this would counter the unfair strategies of Mexico and China, without ever specifying which actions constituted unfairness. In the case of China, he hinted at currency manipulation, and in the case of Mexico he simply stated, Mexico was “stealing jobs” (Trump, 2016; Solis, 2016).
After being elected, Trump questioned the role of the EU as a negotiating partner and attacked the trade deficit with Germany. In addition, he threatened to use the entire arsenal of unilateral trade remedy instruments, including long-defunct Cold War tools such as Sec. 232 of American trade law, which allows the United States to impose trade restrictions for national security reasons, to right the trade balance, particularly in old industries such as steel and aluminum (Bown, 2017). To counter alleged advantages that EU countries enjoy by virtue of imposing a value added tax (VAT) on imports, the administration supported a destination-based cash-flow tax, supported in the House of Representatives by Speaker Pau Ryan and Ways & Means Chairman Kevin Brady. This tax scheme would impose a 20% tax on all imports, but exempt the cash flow from exports from corporate taxation. The plan was eventually abandoned in favor of a more conventional tax reform (Hufbauer and Lu, 2017). The administration also indicated that multilateral disciplines imposed by the WTO system would not constitute a barrier to US unilateral actions (USTR, 2017). All these elements clearly describe an “America First” trade policy that would leave all conventional strictures and commitments behind and open the way for populist initiatives to please the base of left-behind Trump voters in economically declining regions.
The first victim of the new approach to trade was the cancellation of the TPP, thus giving up all geo-economic and geopolitical aspirations in the Asia-Pacific arena. Implicitly, this also spelled the end of TTIP. New agreements are not on the agenda of the administration, just righting the imbalances and injustices of previous agreements. Thus, the entire energy of Trump’s trade policy was directed toward dealing with the supposed negative effects of NAFTA, an agreement through which Mexico and Canada would take unfair advantage of the United States. For the administration both options were on the table: renegotiating the agreement or cancelling it altogether. Eventually the administration, under the leadership of the new US Trade Representative, Robert Lighthizer, decided to start a renegotiating process, a decision that Mexico and Canada accepted, partly because these countries agreed that a modernization of the more than 20 years old agreement was in order, as the TPP to which Mexico and Canada were partners, had already laid out a plan for modernization.
However, the current course of negotiations suggest that the Trump administration follows a line of demands that may end up scuppering the whole agreement by making those demands unacceptable to Canada and Mexico. In the critical automotive sector, the administration does not only demand a change of the rules of origins, but increasing US content in cars produced in the partner countries, a sunset provision that would lead to the automatic expiration of the agreement unless affirmatively renewed, and an end to arbitration in dumping and countervailing duty cases (Hufbauer, 2017). As USTR Lighthizer said in an interview in October 2017: “If we do end up not having [Nafta], my guess is all three countries will do just fine. There’s plenty of trade, and plenty of reasons to trade” (Lighthizer cited in Donnan, 2017). The administration is perfectly willing to let the renegotiations fail, despite of strong opposition by Congress, business groups, and US agriculture.
Trump has touted its “America First” trade policy at the 2017 Asia-Pacific Economic Cooperation (APEC) forum in Vietnam, stressing that the United States would no longer be willing to tolerate “chronic trade abuses” from the region: “We are not going to let the US be taken advantage of any more.” Trump also indicated that in the future the United States would only pursue bilateral agreements, but not plurilateral ones that would span the region: “What we will no longer do is enter into large agreements that tie our hands, surrender our sovereignty and make meaningful enforcement practically impossible” (Financial Times, 2017a, 1).
The Trump administration has no interest in forging any regional or interregional ties. Its main objective is to reduce bilateral trade imbalances by bilateral negotiations in which it is in a stronger position. During the APEC forum, it has not found any support for this strategy, rather the remaining states in the TTP agreement, among them Japan, Malaysia, Singapore, Australia, Canada, and Mexico, have agreed to proceed without the United States and launched what is now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (Financial Times, 2017b, 8). Even though some of the details need to be worked out, it appears that the United States is increasingly isolated with its strategy of aggressive bilateralism.
What do the changes in US trade policy vis-à-vis Asia and the NAFTA partners mean for Europe and the TTIP? Trump’s trade policies have lost any reference to regional integration, be it in North America or in Asia. This will make the pursuit of interregional strategies impossible. This is true for TTIP as well as a wider integration of the core transatlantic area with North America, an extended TTIP, including Mexico and Canada. Europe also has to anticipate the fallout of a failure of the NAFTA negotiation. European companies are integrated into North American supply chains, particularly in the automotive trade between Mexico and the United States, and any changes in NAFTA or its demise will have consequences for transatlantic trade as well.
It is also questionable whether an FTA of any kind between the United States and the EU fulfills the Trump administration’s criteria for its new bilateralism. The administration has not finally decided whether the Commission is the right partner. The administration has not even appointed an ambassador to the EU. A trade agreement with the United Kingdom after Brexit appears to have more appeal for the administration than dealing with the Brussels-based bloc. Evidently, the Trump administration—after over one year in office—has not defined its approach to the EU. Its focus at this point is dealing with NAFTA, which has played a much more important role in the domestic debate about job losses and trade. In the short term, trade frictions deriving from Trump’s unilateralism vis-à-vis Europe may dominate the agenda, and push back any efforts to explore whether TTIP can be revived.
More alarming may be the Trump administration’s hostility to the WTO, the backbone of rule-based world trading system (Dyer, 2016). Already the Obama administration had begun politicizing the appointment of judges when it blocked the reappointment of a South Korean judge to the appellate body because of an alleged anti-US bias. The Trump administration is now blocking the appointment of any new judges, claiming, in an interview with Lou Dobbs on the Fox Business channel in October 2017 that the WTO and its dispute settlement is systematically tilted against US interests. Due to the fact that the United States has fewer judges than other countries, the United States has no chance of winning cases:
TRUMP: The WTO, World Trade Organization, was set up for the benefit for everybody but us.
DOBBS: Right.
TRUMP: They have taken advantage of this country like you wouldn’t believe.
And I say to my people, you tell them, like as an example, we lose the lawsuits, almost all of the lawsuits in the WTO—within the WTO.
Because we have fewer judges than other countries. It’s set up as you can’t win. In other words, the panels are set up so that we don’t have majorities. It was set up for the benefit of taking advantage of the United States.
(Fox Business News, 2017)
The US representative to the WTO recently advocated a return to the system of “positive consensus,” which would imply a WTO ruling would only have force if all parties, including the losing party in a dispute, would agree to the ruling. USTR Lighthizer recently expressed his sympathy for a return to more negotiated outcomes in dispute settlement cases instead of having a binding resolution with the possibility of approved retaliation. In addition, Washington is trying to use an obscure 1962 law (Sec. 232) which would allow the president to impose duties on steel and aluminum in a case when imports constitute a threat to national security, a very weak rationale for banning steel imports as only a fraction of imported steel is meant for US defense use. Should other countries object to such tariffs, the United States could possibly invoke the national security exception of the WTO (Art. XXI of the GATT), which was actually designed for war time use. Should other countries challenge the US action and win, it would set up a campaign of the Trump administration and US steel companies against WTO. Should the US win, this instrument would potentially be available to other WTO-members (Gordon, 2017).
The Trump administration is evidently tempted to undermine the global trading system as spelled out in the rule-based WTO framework. The eventual task for the EU may then not be to revive transatlantic interregionalism, but to help shore up global multilateralism. Whether the EU and the United States can return to a framework of closer economic cooperation under a TTIP-like governance system is an open question. This depends on how long the Trump regime will last, and what legacy it leaves behind. The US rebellion against trade liberalization and trade agreements reflects deeper economic and social trends, and it will therefore leave traces on bilateral, plurilateral, and multilateral relationships that will be hard to eradicate. The major imperative now is damage control.
But even if damage control is of primary importance now for the EU, the demise of TTIP leaves a vacuum. Transatlantic interregionalism had been due for an institutional update to lift it to a higher level, an aspiration formulated ever since the Transatlantic Declaration. With the Trump administration, this momentum has been stopped abruptly. The strengthening of interregional ties in the transatlantic arena between the two key protagonists has been put on a backburner, and it is quite conceivable that transatlantic interregionalism will revert to improvised summit exercises. This will not be compensated by the fact that the EU reaches out to Mexico and Canada. The Trump disruption undermines interregionalism in the Americas as a whole.
The case of interregionalism in the transatlantic area would have been the first instance of a close institutional relationship between a major power and a highly integrated regional organization. It clearly is a form of hybrid interregionalism, but as argued in the introduction, the dominating role played by the United States in North America made a pure form of interregionalism that would have included Canada and Mexico, that is, a NAFTA-EU pact, an unlikely undertaking. Given Trump’s attacks on NAFTA, it is absolutely inconceivable. Summitry may actually not even survive in an improvised form, given the possibility of an all-out trade war between Brussels and Washington after Trump announced massive steel and aluminum tariffs on the basis of a indefensible national security rationale. What would be the basis of a EU-US summit with a president, who claims that “trade wars were good and easy to win” (Donnan and Weaver, 2018, 2). The real question that the Trump administration poses to EU-US relations is how do you structure them when one side pursues a vindictive-aggressive strategy which leaves professional staff advice is sidelined. The current US administration with its contempt for expert advice and bureaucratic routine and the Brussels culture of negotiations do not mesh very well. What we can expect are bilateral meetings with European leaders, based on the Macron-Trump model.
Historically, the United States has been a country that has been reluctant to surrender even limited sovereignty for mutual gain. This has excluded deeper integration in North America but also made deeper institutionalized relations with Europe a challenge for the United States. Under the Trump administration this deeply held preference for sovereignty has been taken to extremes under the “America First” label. The administration wants to dictate what the terms of economic transactions are in an economic context that is seen as zero-sum game. Under these circumstances interregionalism has no chance.
Note
1. TPP encompasses Canada, Mexico, Peru, Chile, Australia, New Zealand, Brunei, Vietnam, Malaysia, Singapore, and Japan.
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