How a Great Power Falls Apart
Decline Is Invisible From the Inside
Wolfsburg, in Germany’s industrial heartland, is a symbol of the country’s thriving manufacturing sector and international competitiveness. Founded in the 1930s as a planned community for German autoworkers, the city has become the country’s richest per capita. It hosts Volkswagen’s headquarters and the world’s largest auto plant and is the poster child for the country’s center-left case for an open, trade-based economy. It was a fitting site for the Social Democratic Party (SPD) to hammer out its positions this September in preparation for Germany’s 2017 federal elections.
One of the most contentious issues at the SPD’s convention was the party’s stance on the Comprehensive Economic and Trade Agreement (CETA) between the European Union and Canada, negotiations for which concluded in 2014. It took a raucous intraparty battle and a political gambit by Sigmar Gabriel—the SPD leader, economic minister, vice chancellor, and likely challenger to Chancellor Angela Merkel in the 2017 elections—to push support for the pact into the SPD’s platform.
The CETA vote matters because some Europeans, particularly in Austria, France, and Germany, regard the controversy around the agreement as a dry run for a much larger clash over the proposed Transatlantic Trade and Investment Partnership (TTIP), the mammoth free trade agreement between the United States and the EU. The fates of CETA and TTIP are intertwined, and like the CETA, TTIP, which is still being negotiated, is not out of the woods.
As France and Germany prepare for major elections, opposition to TTIP has become a cause célèbre among Europe’s right-wing populists, farmers, environmentalists, antiglobalization activists, and some trade unions (particularly in the service sector). Together with some broader factors conspiring against TTIP’s completion, this opposition has made the pact’s prospects—and those of trade negotiations more generally—seem grim. The era of the big trade deal is certainly in hibernation. The question now is whether it is dead altogether.
The economic and strategic logic for a U.S.-EU free trade area is clear. The transatlantic economy represents 45 percent of the global total, is responsible for $1 trillion in annual trade and $3.9 trillion in investment, and supports 13 million jobs. According to at least one study, a transatlantic trade deal could add, in total, over $106 billion to the United States’ economy and $133 billion to the European Union’s; it could also create as many as 750,000 new jobs in the United States alone. (The studies were conducted under the assumption that the United Kingdom would remain part of the EU; even under Brexit, however, the gains to the transatlantic economy would be significant.) Along with the enlargement of NATOand the EU, the creation of a barrier-free marketplace is one of the unfinished projects of the post–Cold War transatlantic alliance. It would pull Europe and the United States even closer together and allow them to negotiate from a position of strength with such countries as China and Russia in sectors from Internet governance to energy.
During the negotiations’ early stages, TTIP seemed to check a number of boxes for both U.S. and European officials. Merkel backed the project, which she thought would play to Germany’s strengths as a trading power and its interest in strengthening the transatlantic alliance in areas beyond security and defense. British leaders believed that the deal could give a boost to their vision for a liberal, trade-oriented Europe, improve London’s relationship with the United States, and strengthen their domestic case for the United Kingdom’s continued membership in the EU. And U.S. officials saw TTIP as a direct way for the United States to contribute to Europe’s recovery from the eurozone crisis.
But for all of TTIP’s promise, the administration of U.S. President Barack Obama approached the arrangement hesitantly. For one, Washington saw the success of another multilateral trade deal, the Trans-Pacific Partnership (TPP), as more important to the United States’ geopolitical future. And then there were the practical difficulties of TTIP negotiations, which were expected to be so arduous that U.S. and European negotiators spent a year and a half deciding whether they were willing to commit to them. Making the most of the deal would require hard work on issues beyond tariff reductions; to succeed, Washington would need to shatter some of the golden cows of a number of powerful interest groups in such areas as agricultural policy, regulatory cooperation, and digital issues.
Negotiators on both sides of the Atlantic believed that TTIP’s fate would be decided in Europe. The challenge of convincing the continent’s skeptics to back the pact was immense. Yet EU governments have made only a halfhearted defense of the negotiations, and many EU leaders have even publicly opposed them. Gabriel, whose political future depended on the success of the CETA, sought to disentangle that deal from TTIP by declaring the latter a failure in late August. Around the same time, French President François Hollande said that Europe’s positions had “not been respected” and indicated that Paris was ready to call off TTIP negotiations. Austria’s political class has followed suit, and the country’s presidential candidates—the hard-right populist Norbert Hofer and the Greens party member Alexander Van der Bellen—are competing to claim the mantle of anti-TTIP candidate. Even European Commission President Jean-Claude Juncker, who leads the body negotiating TTIP for the EU, did not mention the pact in his exhaustive State of the European Union speech on September 14.
Negotiators on both sides of the Atlantic believed that TTIP’s fate would be decided in Europe.
To a certain extent, the recent European opposition to TTIP reflects an attempt to secure negotiating leverage rather than an outright rejection of the pact. But there are a number of other, more lasting reasons for EU leaders’ recent retreat. To begin with, European leaders have been busy with a raft of immediate problems: the United Kingdom’s vote to leave the EU, the aftermath of the eurozone crisis, the conflict in Ukraine, the civil war in Syria, the rise of the European right, and the migrant crisis, among others. Next, many in Europe see the anti-TPP mood of this year’s U.S. presidential campaign as a sign that something similar will eventually befall TTIP in the United States as well, rendering European support for the pact a lost cause. And many of Europe’s leaders are genuinely ambivalent about the need for a grand U.S.-EU economic deal.
Then there is the problem of TTIP’s reputation. Negotiators have attempted to make a progressive case for TTIP, arguing that it will safeguard labor rights and the environment, among other things. Yet the TTIP brand has nevertheless grown toxic, thanks largely to misunderstandings surrounding some of the agreement’s potential features. TTIP’s opponents, for example, have assailed an obscure but increasingly controversial provision known as investor-state dispute settlement (ISDS), a mechanism that allows foreign investors and firms to challenge governmental efforts to impose conditions on their businesses they regard as discriminatory. For TTIP’s detractors, that process is an extrajudicial and undemocratic shortcut for the private sector to transform daily life to the advantage of foreign businesses. Yet the provisions, which are meant mostly to encourage foreign investment in states where there is some political risk, have been a mainstay in trade agreements since the 1950s, and no ISDS case brought against France, Germany, or the United States—the three largest TTIP economies—has ever succeeded. Anti-TTIP campaigners are also concerned about the treatment of personal data in the European marketplace, privacy issues, and food safety. The industry and public officials backing the deal were slow to realize how such charges would resonate with the European public and failed to effectively counter them, limiting themselves mostly to generic declarations of support for the negotiations instead.
The most vocal TTIP skeptics belong to Europe’s core countries, have the greatest leverage over EU institutions, and yet counterintuitively stand to gain the most from a successful deal. In Germany, where nearly half of GDP and one in four jobs are dependent on exports, public support for TTIP has plummeted—from 55 percent in 2014 to just 17 percent today, according to the Bertelsmann Foundation. It has fallen to the bloc’s outer ring—the Nordic, Baltic, central European, and Iberian countries—to champion the deal.
TTIP negotiators also face a number of structural difficulties. Thanks to the increasing complexity of trade agreements and the difficulty of moving them through skeptical, dysfunctional legislatures, bilateral deals are taking longer and longer to bring into force. The North American Free Trade Agreement, which entered into effect in 1994, took less than three years to finalize. A 2011 free trade agreement between the United States and South Korea took almost six years to ratify; a deal with Panama, finished a few years earlier, took almost nine. The TPP negotiations began in February 2008, during the administration of U.S. President George W. Bush. In recent years, as the political consensus around the benefits of trade has unraveled, European trade deals have fallen victim to a similar trend.
TTIP’s 15th negotiation round will be held in New York in early October. U.S. officials, seeking to squeeze every drop of potential from the negotiations before the end of the Obama administration, have held fast to concluding the agreement before the end of the year. That is an unlikely target: the number of chapters the agreement will contain has not even been finalized. Washington’s insistence on a rapid conclusion to the negotiations has rankled many in the EU, such as Austrian Economy Minister Reinhold Mitterlehner and French Trade Minister Matthias Fekl, who see it as heavy-handed and unrealistic. Both have called for starting new negotiations under a different name.
Brexit has also left its mark on the negotiations. The United Kingdom is responsible for some 17 percent of the EU’s GDP and receives a quarter of U.S. exports destined for the EU. Once the country leaves the union, the bloc’s economic might and negotiating power will shrink. At the same time, the EU will lose one of its strongest supporters of a U.S.-EU trade deal, and the balance of power in Europe will tilt away from economic liberals and toward those who support greater shielding and management of the European market. For the United States, then, Brexit will make EU markets a smaller prize and EU officials more difficult negotiating partners. (It has also led to calls by some U.S. Republicans for the negotiation of a separate trade deal between the United Kingdom and the United States.)
There is also the matter of the European public’s opinion of the United States, which might be characterized as a mix of admiration, trepidation, and disdain. EU political decisions that knock U.S. corporate interests, such as the European Commission’s ruling against Apple’s tax payments in Ireland, are among the continent’s most popular. With respect to TTIP, too, such attitudes have encouraged some EU officials to approach the negotiations carefully.
For decades, the right to negotiate trade agreements on behalf of EU member states was the crown jewel among Brussels’ powers. Trade was the one area in which the EU spoke with one voice: the European Commission’s. But recently, pressure to repatriate those powers to national authorities has been on the rise. The governments of France, Germany, and other countries are pushing for their national trade ministers to play bigger roles in EU meetings and have insisted that both CETA and TTIP be classified as so-called mixed agreements, which means that they will require ratification in dozens of national and regional parliaments to enter into force.
This devolution undercuts Brussels’ institutions, especially the European Parliament, as the continent’s primary arbiter on trade. It bogs down agreements such as CETA and TTIP in regional and national assemblies, effectively leaving agreements provisionally in force for years. (Some critics of the trade deals who have anticipated this have already begun to call for the end of provisional enforcement.)
That trend seems set to continue for the foreseeable future. Yet it is not too late to salvage TTIP, CETA, and the TPP. To save the era of the big trade deal, Western policymakers must address the concerns of citizens who have heard about the broad benefits of economic globalization yet have suffered stagnant wages, lost bargaining power, and declining opportunities. Governments should embed trade agreements into broader economic strategies that maintain state-of-the-art infrastructure systems, cushion citizens against economic downturns, and do more to equitably spread the gains produced by economic openness. Only then can the West reap the benefits that a U.S.-EU trade deal would offer.