A Trans-Atlantic Transition

AUSTIN – Despite many calls for a “new Atlanticism” or a “new transatlantic bargain,” the US-European relationship remains imprisoned by old habits. After all, it is an inescapable reality that almost all of today’s great challenges lie outside the traditional NATO relationship, and many are in areas where US and European views have long diverged. A meeting of minds on every global issue is too much to ask of both the US and Europe, but on many issues strategic convergence seems both possible and necessary. These include management of the global financial and trading system, addressing energy security and climate change, and re-fashioning existing international institutions to address these problems. Perhaps it has taken the global economic crisis to compel Americans and Europeans to revitalize their cooperation. With the International Monetary Fund sidelined at the start, the Europeans, led by British Prime Minister Gordon Brown, called for a summit meeting of the G-20 to consider a new international financial architecture, bypassing not only the Fund, but the G-7 as well. This initiative, and the three G-20 summits that have followed, mark a promising start. With European and US leadership, several measures were undertaken to strengthen financial oversight and monitoring via the IMF and a Financial Stability Board that replaces the old Financial Stability Forum. The G-20 leaders also agreed to recapitalize the IMF and regional development banks via an impressive $1.1 trillion package of measures to assist the poorest countries. The essential next step is to bring the new economic powers more fully into the global system, and to have their growing power and influence reflected in the IMF, World Bank, and other institutions. The emerging-market economies account for 30% of global GDP, 45% of total exports, and 75% of foreign exchange reserves, yet the traditional Western powers of the OECD continue to hold 63.8% of the total voting shares in the IMF, with the G-7 alone constituting 43.7% of the total. A good place to start would be for the US and Europe to give up their traditional claims to the top World Bank and IMF jobs. Likewise, emerging economic giants like China and India should be accorded substantially greater voting power. One possible formula would be for the US to relinquish its position as the sole country with veto power in exchange for the EU’s agreement to reduce its combined voting share from 30% to the same level as the US. The size of the IMF’s executive board should be reduced from 24 to 20 members by consolidating European representation. So far, however, the US and the EU have been loath to relinquish their privileged positions. The global financial crisis also has contributed to a growing crisis of the world trading system, with governments responding to anti-globalization pressures by pursuing mercantilist policies. Bilateral and regional trade agreements have been proliferating, most of them the kinds of discriminatory trade deals that the US-led international order was designed to prevent. Meanwhile, the Doha Development Round risks becoming the first post-war multilateral trade negotiation to fail. Yet, despite their rhetorical commitments to completing the Doha round, neither the US nor any other economic power has done much to move it forward. In the US and elsewhere, the Doha round has sparked widespread opposition from workers and trade unions, and has elicited only tepid support from the wider public. It is, in short, the familiar story of gains being widely distributed while losses are sharply concentrated, usually by sector, and often by region. Reviving Doha will be possible only if the American public and Congress see large, headline-grabbing benefits that could offset opposition from those who stand to be adversely affected. A bold international move would be needed to overcome entrenched positions, and that means a deal involving substantial concessions by the US and the EU on agriculture in return for commensurate commitments by India, Brazil, China, and others to open their own markets for services and agriculture. With the Europeans, simultaneous pursuit of an “enhanced transatlantic market” would make a new US-EU Doha initiative on agriculture more attractive to both sides, as it would aim at reducing additional barriers to transatlantic trade that are not covered in the multilateral round. Another legacy of the outmoded international system is that the International Energy Agency includes none of the major energy-exporting countries. The US and Europe should take the lead in expanding the IEA’s membership to include China, India, Russia, and other non-OECD countries, and in elevating it, along with an expanded Energy Charter Treaty, as a forum for energy security through negotiation among suppliers, consumers, and transit countries. The world is on the cusp of the most profound shift in global power and influence in a century. Managing this quiet revolution calls for nothing short of a new international system, with a radical revision of existing institutions and patterns of doing business. The existing international system, fashioned for the world of the mid-twentieth century, is not relevant to the new global agenda, and the emerging re-distribution of power roughly from West to East is unlikely to permit any new global order to be managed by a US-European condominium. Robert Hutchings is Dean of the Lyndon B. Johnson School of Public Affairs at the University of Texas. Copyright: Project Syndicate, 2010. www.project-syndicate.org