Wednesday, June 1, 2005

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Don't hold your breath on TAFTA

Glenn Reynolds links to a John O'Sullivan column on the fallout from the French rejection of the EU constitution. It's an odd column, in that carries a lot of normative appeal to me but doesn't make complete sense.

O'Sullivan correctly brings up a worrisome byproduct of the French rejection -- the effect on Turkey:

Since the Turks have been seeking entry -- and getting half-promises of it -- from the Europeans since the early 1960s, rejection is likely to create a series of international crises. In Turkey the reaction would be profound and bitter. The Turks would reasonably feel that they had carried out every reform requested by Brussels, significantly altering their political, social and economic life, and still have been rejected. Both the major parties -- the traditional Kemalist opposition and the new Islamic conservative government -- would be weakened since both supported the European orientation of Turkish foreign policy.

The forces likely to be strengthened by rejection are the Turkish army, extreme Turkish nationalists and Islamist fundamentalists. Since these are all radically opposed to each other -- the army being secular and pro-American, the Islamists in favor of a Turkish identity rooted in Islam and closer links with the Arab world, and the extreme nationalists, well, extremely nationalist -- there will probably be a series of crises in Ankara until a new political status quo is established.

No disagreement with that analysis. Then things get very strange:

"There is no Plan B" -- Plan A being Turkey's EU admission. And Washington echoes the same slogan because it strongly supports the Turkish application.

In reality there is always a Plan B, even if the politicians avoid considering it until Plan A has collapsed. Under this particular Plan B, the United States would rescue Turkey and the EU from their joint crises while also advancing U.S. interests in transatlantic integration.

It would work as follows:

First, the EU and the United States (together with its partners in NAFTA) would merge their markets to form TAFTA -- or a transatlantic free trade area.

Second, they would invite all the existing European countries not in the EU, including Turkey, Norway and Switzerland, to join this enlarged TAFTA. (Ukraine, Russia and Latin American countries outside NATFA would be eligible to join once they met criteria similar to those required for EU entry.)

Third, this TAFTA would establish joint procedures for harmonizing existing and new regulations between NAFTA, the EU and non-EU states,.

Fourth, free movement of labor would not be a provision in TAFTA, but there would be preferential immigration rules between members.

Laid out in this way, such a Plan B inevitably sounds utopian. Many of its individual features, however, have been widely discussed for years. Indeed, a full-scale EU-U.S. free trade area almost came about a decade ago.

At the time it was vetoed by the French. But Europeans might now see the value of a program for economic integration that does not involve free immigration -- but that would offer Turkey a solid substitute for EU membership, mollify the Islamic world, and build an long-term economic bridge to Russia, North Africa, the Middle East and Latin America.

And in their currently shaken state, even the French might be prepared to accept American leadership out of the crisis -- so, Condi, act quickly.

Okaaayyyyy.... just a few questions for O'Sullivan:

1) If a large percentage of the French opposition to the constitution was that it was too liberal, how is a free trade area with the United States going to be viewed by the French?

2) If Americans are hostile to the Kennedy-McCain version of immigration refor, how do you think Americans will react to any arrangement whereby Mexicans would receive "preferential immigration rules"?

3) Would anyone on either side of the Atlantic be comfortable with an arangement whereby there would be "joint procedures for harmonizing existing and new regulations between NAFTA, the EU and non-EU states"? How does O'Sullivan think that would work with, say, genetically modified foods?

To be clear, I think O'Sullivan's proposal has a lot of merit on substance -- I just don't think it has any hope of succeeding at the current political moment.

I am curious whether there would be support in the U.S. for something a bit simpler -- a free trade agreement with Turkey. Comment away!!

posted by Dan on 06.01.05 at 12:01 AM


I would support a free trade agreement with Turkey.

posted by: Bo on 06.01.05 at 12:01 AM [permalink]

the US couldn't even negotiate a northern route thru turkey (and perhaps CAFTA for that matter)... besides accession wasn't even scheduled until 2014 (at the earliest) i fail to see how a rejection (of bad legislation no less) matters much, except that pundits needed something to talk about - "EU devolution & euro crackup, oh no," "our constitution is better than yours," etc - oh wait... anyway, economic reform and integration is the key (the horse), not political union (the cart), that will determine whether the euro-project/experiment ultimately succeeds or fails; and, i might add, all the effort toward making it work would be infinitely preferrable to say another franco-prussian war, or what have you, lest we forget...

posted by: carabinieri on 06.01.05 at 12:01 AM [permalink]

Afta the referendum I've seen people talking about changing Nafta to include the UK and places like Holland. But they'd hafta pull out of the EU to join Nafta, and a Tafta's likely to provoke lafta.

posted by: Pat Rafta on 06.01.05 at 12:01 AM [permalink]

What would be the benefits of an FTA with Turkey?

posted by: Jonathan Dingel on 06.01.05 at 12:01 AM [permalink]

The EU wouldn't reject Turkey outright; they would just give another promise that accession might be around the corner. After all, according to the EU, it isn't allowing Turkey to join because Turkey isn't ready yet (not enough rights for women, minorities, military is too close to the government, etc.)

When I say EU, I mean the folks in the institutional structures of the EU, not the population at large. I know quite a few people who shudder at the thought of Turkish accession.

posted by: clarkent on 06.01.05 at 12:01 AM [permalink]

If we could do it consistent with our interests, I would like to see the US offer a more economically liberal alternative to the EU.

If the EU comes together, countries like Britain are stuck choosing whether to be inside or outside the club, and neither choice is very appealing.

posted by: J Mann on 06.01.05 at 12:01 AM [permalink]

"Plan B" always seems to be some idea that no one except its author has ever considered. My own suggested European response to the draft EU Constitution's crash-and-burn -- the formation in each European country of a political party committed explicitly to making Europe more like the United States -- is probably more likely than this loopy TAFTA idea.

posted by: Zathras on 06.01.05 at 12:01 AM [permalink]

The two problems with Europe are (1) the accretion of regulatory power to regional institutions without a commensurate increase in democratic accountability and (2) the performance of different political economies. The second problem will have to be solved at the national level. The first problem is the real reason why the EU is unpopular with its national electorates.

But this problem only exists because the United States underpins European security. If NATO dissolved, Europe would have to federate to prevent a return to national control of the region's militaries. Europeans can afford their present uncertainties only because America relieves them of having to run an independent regional military structure. The true test of regionalism will come if or when Europeans have to provide independently for their own defense.

posted by: David Billington on 06.01.05 at 12:01 AM [permalink]

I had to laugh when I read that John O'Sullivan was serious about including Norway in the TAFTA. Norway has no interest in free trade, (thank you very much). They voted against joining the EU about a decade ago for those very reasons. They don't want to open the country up to competition from the outside. They are very happy with having one of the highest per capita GDP, thanks to all the oil revenues, and Norway certainly does not want to share its fishery reserves with anybody else.

I stopped taking O'Sullivan seriously after that. He clearly hasn't researched his topic enough to not know these basic points.

posted by: Alasdair Robinson on 06.01.05 at 12:01 AM [permalink]

A free-trade agreement with Turkey would probably lead to more "trade diversion" than "trade creation." Nor do I see it as especially desirable politically. We've already given them lots of aid and support for decades, but public opinion remains fiercely anti-American. We don't need them as a bulwark against Russia, nor against the Arab Middle East. I say, leave them out in the cold, until the government has the nerve to talk down anti-Americanism at home.

posted by: Lancelot Finn on 06.01.05 at 12:01 AM [permalink]

Dear Mr. Drezner,
Many thanks for your very reasonable comments on my column. May I make four points in reply:
First, you are right to ask why the French (Germans, Belgians, etc.) would join an expanded TAFTA when the French referendum showed that the French at least want more rather than less protection against the market. The immediate reason is that it would get them off several painful political hooks--notably how to exclude Turkey from the EU without upsetting the geopolitical applecart. (Don't underestimate the embarrassment internally and externally such a decision to exclude Turkey would cost a French government with a large Muslim electorate.) But there would also need to be something in the package designed to appeal specifically to the French government and voters--and there is. In a longer version of the column (that is appearing this Sunday in the Middle East and will be available on the website of Benador Associates), I suggest that any such TAFTA deal would allow an "inner core" of EU states--France, Germany, Belgium and Luxembourg--to forge ahead towards the more "harmonized" and centralized regulatory federal state they plainly want. The British etc. find these arrangements irksome and continually obstruct their application to the whole EU. But there would be no good reason to oppose taxes and regulations being harmonized within this inner core--and then made subject to jurisdictional competition and the principle of "mutual recognition" in the wider EU and TAFTA. That would give the French their long-sought federal superstate incorporating the "European social model." I think such a development would be better for the outer core than the inner, but the French seem to disagree with me. Let's put it to the test.
Second, an immigration preference is not an open door. Existing legal and illegal immigration from Mexico is already higher than any likely legal preference system would permit. Any U.S. legislative reform of immigration is likely to include some measure of hemispheric preference anyway. And the trading aspect of TAFTA would appeal to U.S. industry and labor more than most free trade deals because it would be less one-sided: it would open up rich markets, now protected by tariffs and regulations, where the wage levels and regulations are not wildly out of line with those in the U.S.
Third, I don't underestimate the difficulty of getting the U.S. and Europe to agree on a joint process of regulation-making. (Indeed, my next Sun-Times column is on the difficulty of getting liberal economic reforms through the present EU structures.) As regulations overtake tariffs as obstacles to free trade, however--and as EU regulations frequently become the world's gold standard these days--it has become essential to do so in order to avoid a kind of worldwide regulation war. As almost everyone except the Greens and some Brussels bureaucrats now concede, the recent rows over the EU's proposed chemical REACH regulations demonstrate a crying need for early consultation on such regulation-making in future. What better way than to establish a joint EU-US regulatory consultation process through a TAFTA? This won't be easy, but there are many Europeans (notably industry groups and liberal paries) who would support such a process since it would reduce the Green stranglehold on the wider EU regulatory process. (They would get control of the Inner Core's regulatory processes as compensation.)
Finally, Alasdair Robinson stopped taking me seriously when I proposed that Norway be invited to join TAFTA since it has no interest in free trade and refused to join the EU on that account. Well, Mr. Robinson is certainly entitled not to take me seriously and indeed not to bother reading me at all. In his researches, however, he might have discovered that Norway has been a member of the European Economic Area (along with the EU, Iceland and Lichtenstein) for over a decade. That makes Norway a full member of the EU's internal market--while exempting it from the Common Agricultural and Common Fisheries policies. But there's a snag in this arrangement--Norway is, in the jargon of the Eurocracy, a policy taker not a policy maker. So the Norwegians would likely be attracted by a TAFTA in which the U.S., by exercising its own influence, would open up the regulatory process to itself and other players.
Needless to say, none of these ideas would be welcome in Brussels. But the two referendums have opened up a real democratic debate in Europe over the future of the EU. For the moment national governments, political parties, corporations, think-tanks, and even private citizens have to be listened to--even if only for show. Let's take advantage of that while it lasts.
John O'Sullivan

posted by: John O'Sullivan on 06.01.05 at 12:01 AM [permalink]

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