Friday, May 23, 2008

Let's hear it for the Transatlantic Economic Council

by Philip Whyte

Some institutions get less attention than they deserve. Arguably, one of these is the Transatlantic Economic Council (TEC). On May 13th it met for the second time since its launch in 2007. Its existence is still only known to a small group of initiates. Its obscurity is partly a reflection of its youth. But the TEC’s profile is not helped by the perception that its agenda is dull and that transatlantic relations are no longer as important as they used to be. The TEC’s agenda may be unglamorous. But the transatlantic axis remains as important as ever: it is still the world’s pivotal economic relationship. As protectionist sentiment rises on both sides of the Atlantic, the TEC deserves both greater visibility and political support.

The purpose of the TEC, a biannual summit of US government officials and EU Commissioners, is to deepen transatlantic economic integration. Its main focus is on lowering regulatory barriers – a reflection of the fact that the main impediments to transatlantic commerce are no longer instruments such as tariffs, but regulations ‘behind’ national borders. It is important to understand the limits of the TEC’s ambition. The aspiration is not to create a wider version of the EU’s single market. There is no prospect of goods, services, capital and people moving as freely between the EU and the US as they do within the EU. Even so, the OECD estimates that the economic gains from removing some of the more irksome restrictions to commerce across the Atlantic could be substantial.

If the potential economic gains from deepening the transatlantic economy are marked, why is the TEC’s agenda not better known? The (largely justified) perception that it is dull does not help. Let’s face it: the mutual recognition of GAAP and IFRS accountancy standards, or, for that matter, the transatlantic dimension of the EU’s chemicals directive, are not the sorts of subject that most normal people are inclined to discuss when they kick back and relax after work. Nor do those who are paid to take an interest in these matters find it easy to do so: the eyelids of even the most conscientious and determined policy nerds can start to feel just a little heavy as they grapple with putative regulatory obstacles such as certification rules for new aircraft or detailed prior approval procedures for low acid canned foods.
But there is another reason why the TEC is failing to attract as much interest as it deserves. It is the increasingly widespread view that the economic rise of Asia is loosening economic ties between the US and the EU and condemning the transatlantic axis to obsolescence. Superficially at least, this account seems plausible: after all, both the EU and the US now trade more with Asia than they do with each other. Nevertheless, it is misleading. For one thing, it neglects foreign direct investment (FDI). Yet EU and US firms invest far more on each others’ territories than they do in Asia – and FDI is a far deeper form of economic integration than trade. For another, changing patterns of international trade in goods say little about the EU or US, where services represent 70 per cent of GDP.

So next time you read a story about globalisation and the rise of Asia, remind yourself (1) that the EU and the US are the world’s largest economies and will remain so for some time yet; (2) that the US and EU share by far and away the largest two-way investment relationship in the world economy; and (3) that the world is not nearly as ‘globalised’ as is often portrayed – even the world’s most integrated bilateral relationship is riddled with non-tariff barriers that need to be removed. Finally, be thankful that somewhere deep in the entrails of the Brussels and Washington machineries, public-spirited bureaucrats are busy, on all our behalves, trying to sort out US gripes about EU registration fees for bull semen.

Philip Whyte is a senior research fellow at the Centre for European Reform.

Wednesday, May 21, 2008

What Arab countries think of democracy

by Clara Marina O'Donnell

Earlier this month, the Arab Reform Initiative (ARI) presented its first report on the state of democratic reform in the Arab world. ARI is a consortium of a dozen leading Arab research institutes which try to promote peaceful democratic reform across the Middle East (CER and a few other non-Arab think-tanks are associated with the initiative).

The report is a groundbreaking venture. It is the first collective and coordinated effort by Arab research institutes to evaluate the state of their political systems. By highlighting the progress towards democracy, or more to the point, the lack thereof, ARI hopes to pressure Arab governments into further reforms.

Launched at a conference in Alexandria, the report looks at eight Arab countries – Jordan, ‘Palestine’, Lebanon, Egypt, Algeria, Morocco, Saudi Arabia and Yemen from July 2006 to June 2007. The report’s ‘democracy index’ measures progress towards democracy on the basis of four criteria: strong public institutions, respect for rights and freedoms, the rule of law, and equity and social justice. The results will open a few eyes. Jordan ranked first, ahead of Morocco. And Palestine came third, ahead of Egypt.

Unfortunately, the rankings don’t give us the full picture on the ground. Most such indices are somewhat arbitrary but this one will be particularly controversial. The choice of criteria and how they are assessed explain the surprising results. For example military conflict is not taken into account, which partly explains Palestine’s good marks. Wage equality is used as an indicator for democratic progress, allowing poverty-ridden Yemen to score top marks in that category and increase its overall performance. For future ARI reports to make real difference, the authors will need to refine the methodology (something they recognise).

The Alexandria conference was remarkable as much for the conversations that took place as for the long-awaited report. Rami Khouri from the American University of Beirut argued that the push towards democratic reform has slowed down, and in some places collapsed, over the last few years because of wars and foreign influence (in particular the US ‘war on terror’); ideological conflicts; and the resistance of the ruling regimes. Democratic rights have become less important compared to security and stability. This is particularly the case for countries in conflict such as Lebanon, Iraq and Palestine. But the current situation is also being exploited by some governments, such as in Syria and Jordan, where authorities justify postponing reforms by the need to maintain stability.

Khouri also argued that the arrival in politics of Islamic parties, the strongest opposition movements in most Arab countries, has been a double-edged sword. On the one hand, it has increased the amount of people calling for democracy. But at the same time it has reduced the desire for reform from the governing elites and western powers, who do not want to see Islamists in government.

Professor Mustapha Kamel Al Sayyid from Egypt lamented the lack of links between Arab movements for democratic reform and European and American civil society. Most Arab groups are averse to Western assistance because they perceive it as neo-colonial. But Kamel argued that European civil society groups had been a valuable source of support during the transitions to democracy in Latin America and that Arab movements were losing out.

While taking into acount the many obstacles, the conference and the report concluded that the Arab region ‘showed an initial disposition towards democratic transformation, albeit a still embryonic one’.

But even the conference itself was full of reminders of how difficult the current situation is. One ARI member has been inactive for a year because it is being hassled by its government. And the Lebanese participants could not get home as Hezbollah had cut off access to Beirut airport.

Clara Marina O'Donnell is a research fellow at the Centre for European Refom.

Friday, May 02, 2008

France finds a friend in Ukraine

by Tomas Valasek

The government of Nicolas Sarkozy has launched a charm offensive towards Ukraine. French diplomats in Brussels have begun saying that Ukraine should have a ‘privileged’ status with the EU. And, instead of an ‘enhanced agreement’, which the EU has been busy negotiating with the Kyiv government, France now wants a ‘super-enhanced’ agreement. In the arcane world of Euro-speak, these are loaded terms – what the French are doing is blurring the line between Ukraine being seen as a neighbour and as a potential member.

This is quite a leap for France, which has been better known for its scepticism towards further enlargement. The French rejected the European constitution in 2005, partly because they did not like the ‘new’ European Union born in the 2004 round of enlargement (the newcomers from Eastern Europe tended to be too pro-American to French tastes). And cynics might say that even today, France is only pushing Ukraine’s membership case as a way of blunting its controversial stance on Turkey’s membership (Sarkozy opposes that, and has done his best to slow down Turkey’s accession talks).

Whatever its motives may be, France is doing the right thing. Ukraine matters to European security – it is a large, booming country, right on the EU’s eastern borders. It is culturally and geographically European, and most of its citizens genuinely want to be a part of the EU. It may be years away from attaining anything like European standards of stability, prosperity and governance – but if and when it does, it should be able to join the EU.

Ukraine is also a fragile place politically – constitutional court decisions are routinely ignored, while the parliament has gone months without passing any laws because of a stalemate between the opposition and the government. But that only makes a clear prospect of EU membership all the more important. In all the Central European states that joined in 2004, the prospect of EU membership had a stabilising effect. Politicians become more reluctant to carry on fratricidal arguments when to do so might put the chances of membership at risk.

All in all, the new French stance on Ukraine is welcome news. President Sarkozy has also made it clear that he would like to remove the constitutional provision that any country seeking to join the EU after Croatia cannot do so unless the French vote Oui in referendum. This, too, sends a signal to Ukraine that the EU is becoming a more open and welcoming place. Already, the new French stance on enlargement is percolating through the EU institutions. European Commission experts working with Ukraine report hearing the ‘A’ word, accession, in the corridors and meeting rooms of Brussels. The EU should bring the debate out from behind closed doors. Sarkozy should convince other European leaders that they should send a signal to Ukraine: when it meets the criteria, the EU will welcome it as a member.

Tomas Valasek is director of foreign policy and defence at the Centre for European Reform.