Trade talks and national security

Vinod Aggarwal, Simon Evenett 15 November 2013

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It was all going so well. In June 2013, at the G8 Summit in Northern Ireland, the EU and US formally launched negotiations for a Transatlantic Trade and Investment Partnership (TTIP). The optics were great. Substantively, the launch was taken as further interest in trade policy by the Obama Administration, whose only trade initiative so far had been the Trans-Pacific Partnership (TPP) negotiations in the Asia-Pacific. On the European side, American interest in working with Europe in view of the “pivot to Asia” was clearly welcome. Berlin provided decisive support for the negotiations and the inevitable French tantrums were contained. One leading study estimated that the benefits to signatories of an ambitious deal totalled €214 billion (CEPR 2013).

No one could have anticipated that just six months later, leading European politicians would call for the suspension of the talks. Ostensibly, they were responding to revelations to reports, if possibly exaggerated, about the extent of US spying in Europe. News that the German Chancellor’s mobile phone was bugged for almost 10 years unleashed a barrage of criticism of US national security policy (Financial Times 2013a). Here our focus is on the implications for the TTIP talks of linking trade and security.

TTIP looked shaky before the spying row

TTIP’s prospects had already dimmed before the revelations about the extent of US spying in Europe.1 Despite giving regulatory cooperation prominent billing as a negotiating priority at TTIP’s launch, the EU and the US have engaged in a “dialogue of the deaf” on this matter. Both are demanding changes in the other’s regulatory structures that have profound legal, if not in some cases constitutional, implications. Once again, independent regulators are lining up legislative and other support to chase off encroachment on their turf by trade policy types that they don’t trust.

Such intra-governmental rivalries, which are an important part of the policy formation in trade talks involving so called behind-the-border regulations, garner more press in the US. The Obama Administration has put off telling the EU which sectors it wants to see regulatory alignment in until December. Just like in the Doha Round, key elements of the negotiating agenda weren’t agreed on before the talks were launched.

The timetable for TTIP has also slipped. The second round of formal negotiations had to be postponed because of the US government shutdown. Rescheduling them has been made more difficult because the US is giving the Trans-Pacific Partnership talks priority. Despite claiming that it can “walk and chew gum”, evidently the US doesn’t have the capacity to manage two large trade talks simultaneously. Market Access negotiations are not even scheduled to start until the first half of 2014. Not surprisingly, officials have begun to distance themselves from completing the TTIP negotiations before the end of 2014, the original deadline.

What the NSA revelations mean for TTIP

From a trade policy perspective, the significance of the revelations about the US National Security Agency (NSA) is that it has encouraged Europeans to link national security concerns to the TTIP negotiation. Those links differ in subtlety. At its bluntest, opposition to the ratification of any deal may grow, although the revelations may just provide those opposed to TTIP with further ammunition.

In the EU, the European Parliament must approve any eventual TTIP agreement. Given the heightened uncertainty over the composition of the European Parliament after the May 2014 elections – where nationalist and anti-EU parties are expected to do well – it is premature to conclude that a parliamentary veto is inevitable. Yet a veto can’t be ruled out either. After all, in July 2012 the European Parliament threw out a global anti-counterfeiting treaty that was negotiated in secret by the leading trading powers including the EU and US. The vote was 478 to 39 against the Treaty.

Attempts may be made to change the scope of the negotiation. Germany is reported to have suggested adding data protection to the negotiating agenda (Financial Times 2013b). This complicates matters by requiring new intra-EU agreement on the terms of the negotiation and may prompt the US to add another item or two. At a minimum, this will be a time-consuming distraction.

A substantive concern is that the goal of using TTIP to devise templates of new trade rules for the global economy will be compromised, at least they relate to rules on state-linked companies. Reports of strong ties between leading American internet, IT, and telecoms companies and the US government cast in a different light criticisms of links between Chinese companies and Beijing. Let’s not forget that Huawei, a Chinese telecoms equipment company with apparent strong links to the Chinese military, was forced to exit the American market after a US congressional committee recommended in October 2012 that no government agency or private firm should buy from it. Which firm-state links should be included in trade talks? Can a fine line really be drawn between commercially-rewarding links between firms and states and other links? None of this will be lost on Beijing, Brasilia, New Delhi, or Moscow.

The trade and national security boomerang

European criticism of US security policy, and related calls for the suspension or modification of the TTIP negotiation, should be seen in the light of repeated attempts by the US to link trade and security since World War II (Cooper 1972, Baldwin 1984, and Aggarwal 1985 and 2013). Such linkage has been elevated in the past decade, first with the adoption of the strategy of “Competitive Liberalization” during the administration of George W. Bush (Evenett and Meier 2005) and, more recently, as part of the “securitization” of US policy towards the Asia Pacific (Higgott 2004, Aggarwal and Govella 2012, Capling and Ravehill 2012, and Ravenhill 2013).

Under “Competitive Liberalization,” free trade agreements (FTAs) were initially reserved for allies with a reliable record on cooperating with Washington on security matters. Consequently Australia, which sent troops to Iraq and Afghanistan, got a FTA deal with the US, while nearby New Zealand didn’t. Another important factor that sank Wellington’s chances was its longstanding ban on visits by nuclear US warships. Competitive dairy exports didn’t help either.

Having seen a key feature of its trade policy through a national security lens, how can the US object to European politicians doing so too? Other major trading partners could emulate US practice. A compromised TTIP effort would show that the trade and security policy linkage has boomeranged on its principal advocate, the US.

It is probably naïve to think that trade policy can be completely divorced from foreign and security policy concerns. When it comes to small arms, nuclear proliferation, etc, the EU linked security concerns to its FTAs (Ahnlid 2012).Still, there is a long tradition of trying to compartmentalise trade matters as much as possible. Departures from that tradition haven’t served America’s trading partners well. Again, Australian experience is instructive. First, Canberra rebuffed several American overtures to negotiate a free trade agreement, without apparently undermining its cooperation on national security matters with the US. Second, despite being war allies Australia got such terrible terms from the US in its free trade agreement that Prime Minister Howard had to overrule advice from his trade negotiators not to sign it (Capling 2004).

The reward for being a good national security ally of the US can include the launch of a free trade agreement, but concluding such an accord on favourable terms cannot be assured. This is due to the fact that US administration can launch negotiations but ultimately it the US Congress that legislates the terms of the deal. Now that the European Parliament has the right to reject trade deals proposed by the European Commission, certain parallels to the US institutional set up – that distinguish initiation from negotiation and ratification – can be found on the other side of the Atlantic (Ahnlid 2012).

In sum, the reactions of many European politicians and interest groups to the revelations about the scale of the NSA’s spying in Europe imply that the trade-and-security policy linkage is alive and kicking. Whether such linkages ultimately serve national commercial interests is another matter entirely – as US companies with overseas operations are learning.2

It may be too late to push the security policy genie back into the bottle, but it may be worth trying. The uncertainties associated with international commerce are large enough without another element of political risk entering into the equation. An understanding between governments is needed to prevent sectors such as telecommunications and those that rely on extensive data transfer, as well as those firms that undertake many state contracts, from being effectively excluded from international commerce. National security arguments could once again provide cover for more commercially-driven murky protectionism. TTIP, probably in diminished form, will likely survive the European backlash against NSA spying, but there’s more at stake.

References

Aggarwal, Vinod K (1985), Liberal Protectionism: The International Politics of Organized Textile Trade, Berkeley, CA: University of California Press.

Aggarwal, Vinod K (2013), “US Free Trade Agreements and Linkages,” International Negotiation, Vol. 18, pp. 89–110.

Aggarwal, Vinod and Kristi Govella, eds. (2012), Linking Trade and Security: Evolving Institutions and Strategies in Asia, Europe, and the US, New York: Springer.

Ahnlid, Anders (2012). “The Trade Do-Gooder? Linkages in EU Free Trade Agreement Negotiationsm”, in Aggarwal and Govella 2012.

Baldwin, Robert E (1984). “The Changing Nature of US Trade Policy Since World War II”, in Robert Baldwin and Anne Kreuger (eds.) The Structure and Evolution of US Trade Policy, University of Chicago Press for NBER.

Capling, Ann (2004), All The Way With The USA: Australia, the USA and Free Trade, University of New South Wales Press.

Capling, Ann and John Ravenhill (2012). “The TPP: multilateralizing regionalism or the securitization of trade policy?” in C Lim, Deborah Kay Elms, and Patrick Low (eds), The Trans-Pacific Partnership: A Quest for a Twenty-first Century Trade Agreement, Cambridge University Press.

CEPR (2013), Reducing Transatlantic Barriers to Trade and Investment: An Economic Assessment, Center for Economic Policy Research, March.

Cooper, Richard N (1972). “Trade Policy is Foreign Policy”, Foreign Policy, Winter.

Evenett, Simon J and Michael Meier (2008), An Interim Assessment of the US Trade. Policy of “Competitive Liberalization”, World Economy, 31(1), pp. 31-66.

Financial Times (2013a), “Spying: Too Much Information”, 2 November.

Financial Times (2013b), “German spy backlash threatens EU-US pact”, 4 November.

Higgott, Richard (2004), “After Neoliberal Globalization: The “Securitization” of US Foreign Economic Policy in East Asia”, Critical Asian Studies 36(3: 425-444.

Ravenhill, John (2013). “Economics and security in the Asia-Pacific Region”, The Pacific Review 26(1).


1 The material for this section was assembled from numerous reports in specialist international trade publications.

2 For example, as a result of news reports in US newspapers that AT&T shares customers’ data with the NSA, European regulators and politicians have warned they will closely examine any attempt by that company to fulfil its plans to acquire a cell phone network operator in Europe, such as Vodafone PLC, a target often mentioned in press reports.

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Topics:  International trade

Tags:  TTIP, NSA surveillance, US-EU trade talks

Professor in the Political Science Department and the Haas School of Business, UC Berkeley

Professor of International Trade, University of St. Gallen; Research Fellow, CEPR

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