Mission report washington, D. C. And chicago, united states



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Trade Policy





  1. Trade has emerged as a central issue of debate in the US presidential elections and the TTIP talks were mentioned frequently over the course of the week. Dan Mullaney, the Chief US Negotiator for those talks, met the delegation at the Atlantic Council. He noted that a round of talks had just concluded and provided an update on where things stand. He first stressed how important the trade and investment relationship is and said that one goal of the talks was to eliminate tariffs while reducing red tape, without engaging in deregulation or any lowering of product safety or environmental standards. The goal is to maintain those standards while eliminating regulatory and bureaucratic redundancies that create trade friction and add cost to trade. Mutual recognition of testing is thus a primary goal of the talks. This would help bring smaller firms into the trading economy. Trading companies are generally far more robust and pay higher wages than those that are not able to participate in export markets. He assured the delegation that the United States is not pushing for the privatisation of government services nor seeking to influence the regulation of national health services as some critics have claimed.




  1. Phil Levy, a Senior Fellow at the Chicago Council on Global Affairs, sought to put the current trade discussions in a broader perspective. He noted that since 1992 there has been a serious partisan split on trade policy in the United States. Liberalisation had long been driven by Cold War calculations to foster open trade among allies and globally to ensure an economic framework for peace and prosperity. The Soviet threat helped discipline thinking about these matters and in the United States free trade was long supported by a bi-partisan coalition in the Congress. This coalition had begun to split apart by 1992 and the NAFTA debate made this split evident. Trade became a bone of contention in the presidential campaign that year. The irony was that the United States had long enjoyed a liberal trading regime with Mexico and it was already a key trading partner of the United States even before NAFTA. Since then, support for liberal trade agreements in the United States has fractured, with many in the Democratic party demanding environmental and labour derogations that were not acceptable, either internationally or by members of the Republican party.




  1. The Trans Pacific Partnership (TPP) talks have generated a great deal of criticism in Congress and these talks are concluding prior to the TTIP talks. Much of the vitriol aimed at TPP is now spilling over into considerations of the TTIP. There is a range of specific issues on the TTIP agenda that are not yet resolved including geographical designations for products and data privacy matters. There has also been a great deal of criticism about the secrecy surrounding these negotiations and this has only triggered deep and often unjustified misgivings about the nature of the talks. Finally, it is important to recognise that Us/Europe trade has long been unfettered. The TTIP talks are taking on the most enduring impediments to trans-Atlantic trade. The problem here is that they are enduring because they are intractable.




  1. Although organised labour supported trade liberalisation for decades in the post-war period, it has now swung sharply against liberalisation. But the focus on trade talks is misguided. There are structural changes unfolding in the national and global economies which make it very difficult to maintain high wages in traditional manufacturing sectors in Western economies. Those who have greater skill sets are faring well but those with limited education are suffering. This is not likely to change insofar as much of these changes are technology-driven rather than trade-policy-driven.


  1. Asia





  1. The continued rise of the People’s Republic of China (PRC) and the implications for NATO Allies were also discussed during the visit. Michael Swaine, Senior Associate at the Carnegie Endowment for International Peace, predicted tough times ahead for the Chinese economy, although he expected the PRC to weather these without major social dislocation. He also suggested that China will remain committed to largely liberal trade and investment practices that are generally in line with global market norms.




  1. Mr Swain indicated that China is unlikely to return to previous levels of double-digit growth as it has entered a more mature phase of development. A 6% rate is more likely. The key question is whether it will continue to open up its market system as its development proceeds. Will it become a more normal liberal economic power or one that continually seeks to game the system through neo-mercantilist measures? Finally, China is also likely to become an increasingly consequential exporter of investment capital. It has massive reserves and will need to find productive outlets for that capital.




  1. Human rights and democracy issues, however, will remain a constant source of tension between China and the West. China’s legally questionable claims in the South and East China Seas not only raise critical legal questions, they also pose a strategic challenge to the region, and by extension to the United States. China poses more problems in its own region than it does on the global stage and the US needs to understand this more in a Pacific than a global context. That said, China will be able to challenge US hegemony in the Western Pacific. The two countries also have fundamentally different views on the nature of stability. There are a range of flash points in the region and these include the Korean Peninsula and the fate of Taiwan. It is still unclear what China’s claims within the so called “nine-dash line” actually mean, and this deliberate ambiguity is fuelling tension with the rest of the region and with the United States. China is also hedging its bets by looking West. Its Silk Road ‘’One Belt, One Road’’ project is designed to develop these new lines of communication and commerce.




  1. Bruce Cumings, the Gustavus F. and Ann M Swift Distinguished Service Professor in History at the University of Chicago discussed US policy toward Korea. He described the peninsula as the most militarised piece of land in the world. North Korea remains an enigma to many, but it is important to recognise the degree to which it suffered during the war. The regime is hard-bitten, hates the United States, and possesses nuclear weapons and medium-range missiles that can target US forces based in South Korea and as far away as Japan. Yet there have been opportunities to establish a more positive relationship with this country, although these opportunities have been essentially squandered. The Clinton Administration, for example, had been set to normalise relations with North Korea, but the election of a new administration ended that attempt to achieve détente. US discussion of pre-emptive strikes against enemies then triggered a rapid deterioration in the relationship. The war in Iraq reemphasised to the North Koreans how important nuclear weapons could be to their own defence. So far they have tested five nuclear weapons, and the government feels that these are now critical to national security. But they are also perfectly aware that if they were ever to use one of these weapons, their country would be eviscerated.




  1. Mr Cumings also argued that those who believe that this regime will eventually collapse are misguided. It is a garrison state which is programmed to defend the country’s territory to the last person. There are currently no signs of instability and dissent in North Korea. People outdo themselves to demonstrate their loyalty to the regime. It is also misguided to believe that China will push North Korea into a more moderate course. There are some in China who see value in having such an unpredictable ally and some even admire the “purity” of its ideology.




  1. Kenneth Pomeranz, University Professor of Modern Chinese History at the University of Chicago, discussed China’s One Belt, One Road initiative, which will link China to Central Asia via what the Chinese call an inland sea. The recent set of agreements signed with Tehran are very much part of this effort and there is very clearly a vital energy component to the initiative. The West shares China’s interest in ensuring that Central Asia has energy export options that bypass Russia, and this is both strategically and economically important for Central Asia itself. But significant external investment will be needed to move energy from this region to Asian markets.




  1. The One Belt, One Road initiative is very much linked to the development agenda of Western China, which is also a region riddled with ethnic tensions. Han Chinese now constitute 50% of the region’s population but they live in very concentrated enclaves. The initiative also has a water dimension, as parts of China face very serious water shortages, which are only worsening. The state has plans to divert major river systems in massive projects but it is not clear what impact these efforts will have. It is important to recognise, for example, that Cambodia harvests 50% of its food in the Mekong Delta. If those waters were diverted, it could cause a food crisis in the region. Overbuilding hydro-related projects is laden with risks to the environment, and the sustainability of these projects cannot be assured. Corruption is also a factor here and it undermines technocratic planning. There is thus tremendous potential for water-related tension throughout this part of Asia. This will remain an uncertain variable shaping the future of the region’s stability and economic development.




  1. Demographics pose another constraint. China is rapidly aging and has managed to avoid the consequences by moving many people from low productivity rural regions to large cities. Urban China is significantly older and has demographics that look more like those of Germany. There is a potential harmony here insofar as the countryside can continue to export surplus labour to China’s cities. But this synergy can hardly be assured and there are social tensions linked to this kind of mass movements.




  1. Evan Feigenbaum, the Vice Chairman of the Paulson Institute, suggested that the United States must deal with China at many levels. China, of course, poses strategic challenges but it is also a trading dynamo and holds out enormous potential opportunities. It is the largest trading partner of 66 countries in the world, including every Asian country with the exception of the Philippines. The US has traded with China, forward-deployed forces around it, and forged bilateral alliances throughout the region. Yet there is no reliable collective security system in the region and thus stability remains an open question. The United States has long encouraged a liberal trading order throughout Asia and the TPP talks are very much consistent with that goal. The problem is that the talks are now in danger and are under attack in the United States. Asian states have begun to look for pan-Asian solutions to regional problems. Regional integration efforts are underway such as ASEAN + 3 effort. The TPP has represented a way to engage the United States




  1. Another problem is that the United States government has divided up its approach to Asia into South Asian, North Asian and Central Asian bureaucracies. But this is artificial and increasingly out of touch with what is actually happening in the region. This needs to be changed, Mr Feigenbaum suggested. The problem extends into the military where there is a Central Asian Command and a Pacific Command. New thinking is needed as are new structures to better reflect this rapidly changing, highly dynamic and potentially unstable region.


  1. Energy and Environment





  1. Edward Chow, Senior Fellow in the Energy and National Security Program at CSIS, spoke to the delegation about energy issues. He provided an outlook of global oil prices and suggested that the recent price shock is partly a function of the explosion of non-conventional oil and gas production in the United States and a significant expansion of renewable energy production there that seems slated to continue. It is now clear that this is not an ephemeral phenomenon and US production will continue to exert downward pressure on global prices. US production has also invariably altered the way it looks at energy-producing regions like the Gulf. Oil is a globally fungible commodity, so the decline in demand for US imports has a very important impact on global supplies and prices. The US had previously been slated to import LNG and is now poised to export that commodity. This has helped drive down spot prices on international markets. The US gas boom is likely to condition gas markets in Europe, but Europe will need to do more to diversify its supply base and improve pipeline connectivity. Russia’s Shtokman field was to be developed with the American market in mind, but the United States will no longer need this energy source. Russia has also had great plans for Asian markets, but there are numerous challenges linked to its capacity to deliver energy to Asia. China itself remains wary of developing an unhealthy reliance on Russian oil and gas, particularly given Russia’s penchant to use its market power for strategic ends. For this reason, Europe remains a key market for Russia, the leaders of which hope that the Nord Stream 2 project will bolster energy sales on the European market.




  1. The fall in prices has also weakened Russia’s budgetary stability. Russia is now producing as much oil as it ever has to try to compensate for losses associated with price falls. These price falls are also slowing Arctic production, although the development lead times are so long that current prices are only one factor in current investment strategies. Low energy prices are also hitting the nuclear and coal industries hard as current gas prices are so low.




  1. Deborah Gordon, the Director of Carnegie’s Energy and Climate Change program discussed the COP 21 agreement as well as long-term trends in energy markets. The COP 21 agreement is not yet operational. Parties to the agreement representing 55% of global gashouse emissions must ratify the agreement before it can be implemented. The Obama Administration has injected a high degree of momentum into this process and it will be difficult to reverse.




  1. The United States is moving quickly on several fronts to reduce greenhouse gas emissions. Coal use has plummeted and last year, the most important additions to stock electricity generation were wind, solar and natural gas. This represents a sea change in US production. Oil and gas are now the largest emitters of greenhouse gas in the United States and reducing their contributions to the problem is the next policy challenge. But it is important to note that many improvements can be linked to transport and fuel efficiency standards, which have significantly reduced emissions in the United States. Ms Gordon noted that smart carbon taxes are an essential step, and she suggested that this could be beneficial to those petroleum products which burn more cleanly.




  1. Oil prices are likely to remain low over the medium term and this does pose some challenges for alternative energy sources. It also challenges OPEC, which continues to lose market leverage. Renewable energy prices continue to fall as the technology improves and its market share will continue to grow.


X. Global Cities





  1. Richard Longworth, Distinguished Fellow at the Chicago Council on Global Affairs, and Noah Toly, a Senior Fellow there, presented their work on Global Cities, a project that has been underway for nearly thirty years at the Council. For years, experts predicted that the diffusion of technology would lead to the demise of cities. The opposite has transpired. Cities around the world are booming and are the drivers of the global economy. It turns out that the concentration of businesses and industry are self-reinforcing. The benefits of agglomeration give these cities enormous and enduring competitive advantages. Of the world’s 100 largest economies 46 are cities, and that figure has risen from 34 a few years ago. The world’s top cities now account for 12% of the world’s economy and these cities, which include Tokyo, New York, Seoul, London, Paris, Osaka, Kobe, Shanghai, Chicago and Moscow, are of enduring influence.




  1. Given their weight in the global economy, cities are also beginning to link up and to promote their shared interests on the international stage. These cities also have common problems. Coping with the terrorist threat is one example. Cities need their own capacity to conduct surveillance, engage in intelligence operations and to ensure broad resilience in the face of these threats, and they must do so while defending democratic values, including tolerance, basic freedoms and transparency. It can be a difficult balance to strike. They also have to deal with the social, political and economic consequences of inequality and poverty. Many are sceptical whether these problems can be solved by central governments so they are working to find their own solutions and coping strategies.




  1. There are also difficult problems associated with global cities. One of the most important of these is the relationship with the hinterland. There are legitimate concerns that large cities are draining the countryside and smaller cities of talent and economic activity. The transition to service-driven industries has only accelerated this process as old factories close. This dynamic will continue to challenge central governments and peripheral regions, which will have to find their niche in a global technology-driven economy.

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1 Turkey recognises the Republic of Macedonia with its constitutional name.



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