Aylin Unver Noi, Senior Fellow, Johns Hopkins University SAIS-CTR
MCAF Advisory Council and Istanbul Cercle member
The 70-year Transatlantic alliance between the United States and the Europe was formed around common values and norms that demanded commitment not just to democracy, the rule of law and human rights, but also to the values of a liberal economy that supported free, fair and open rule-based trade. It was this international liberal economic order that emerged after World War II that led to the establishment of the World Bank, IMF, and free and open trading system through the GATT (1948) and later the World Trade Organization (WTO-1994) and regional trade agreements.
Keynesian economics, which advocates mixed economy that are led predominantly by the private sector, but with a role for government intervention during the recession, served as the standard economic model from 1945 to 1973. Embedded liberalism, a phrase coined by John Ruggie to describe protection gained for workers with the embedded liberal compromise, dominated from from the World War II up until the 1970s, and brought with it a combination of free trade and freedom for states to provide welfare programs and to intervene to reduce unemployment.
Starting in the 1980s, the prevailing system was replaced by neoliberal economic policies that commanded fiscal discipline, trade liberalization, openness to foreign direct investment, privatization, financial liberalization, deregulation, secure intellectual property rights and a reduced role for the state, and this became the dominant economic paradigm for the promotion of growth. The Washington Consensus, a set of broadly free market economic ideas that were supported by the IMF, the World Bank, the European Union and the United States, marked the end of “embedded liberalism” reducing the role of government in economic policies. This led to economically interdependent and more globalized world while at the same time paving the way for regionalism and increasing the number of regional groupings in the 1990s.
Some of these regional groupings were inspired from the successful European economic integration (the largest trading block in the world) and led to the formation of similar customs union and free trade areas that facilitated trade between members through the removal of trade barriers and quotas. Among these can be counted ASEAN (1967), MERCOSUR (1991), NAFTA (1994), most recently the Russia-led Eurasian Economic Union EAEU (2015).
In addition to these regional groupings, mega free trade agreements were negotiated between the United States and 12 countries in the Pacific, creating the Trans Pacific Partnership (TPP) as a part of President Barak Obama’s pivot Asia strategy. Following on from the TPP negotiations, Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union was launched officially in 2013, and China eventually entered the fray through China-led mega free trade agreement referred Regional Comprehensive Economic Partnership (RCEP) that brought together 16 countries.
The mega free trade agreements entered into by the United States are often described as more than simple free trade agreements. Stuart E. Eizenstat, former US deputy Secretary of the Treasury and US Ambassador to the European Union, described such agreements during his speech on the TTIP on March 21, 2013 at the Woodrow Wilson Center as follows: “There are essentially two competing models of governance in the post-Communist world. One is the transatlantic model shared by many other countries, based upon democratic governance, with free peoples, free markets, and free trade; the other is autocratic governance, state-controlled or dominated economies, and managed trade. The TTIP is an opportunity to show the world that our model of governance can produce tangible gains for our people on both sides of the Atlantic and more broadly are the best model to meet the challenges of the 21st century”.
This new regionalism supported by the United States and the European Union is based on an open market and democracy, and aims to make the world free. Larry Diamond, in an article on Foreign Affairs argues that new regionalism can nurture democratic reform in partner countries, giving examples from the TPP negotiations that encouraged human rights improvements in Brunei, Vietnam, and Malaysia. Actually, this was not a new expectation from the new regionalism of the world politics that began with the end of the Cold War. Accompanied by high levels of economic interdependence, the new milieu was based on economic objectives that offered a number of geopolitical objectives. In 2003, the United States launched the U.S.-Middle East Free Trade Area (MEFTA), aiming to have it fully functional by 2013. By the time MEFTA was launched, Israel (in 1985) and Jordan (in 2000) had already established FTAs with the United States while Morocco signed an FTA with the United States in 2004, and Algeria signed a Trade and Investment Framework Agreement (TIFA) as a preliminary step on the way to a US FTA. MEFTA, which encompassed 16 states in the region, was a part of a plan to fight against terrorism by supporting the growth of Middle East prosperity and democracy through trade.
The European Union’s promotion of regional integration also sought to diffuse its own model of democracy, social welfare, and regional integration. Since 1970s, the European Community developed its inter-regional agenda to build bridges towards other regional groupings and to promote its own version of regional integration. The European Union has used the FTAs extensively, along with the region-to-region agreements, having signed six inter-regional cooperation agreements and engaged 19 political dialogues with regional groupings such as Mercosur, the Andean Community, the San José Group, the Rio Group, ASEAN.
Promoting regional integration in territories both near and far has thus become one of the main foreign policy tools of the European Union. In the Global Strategy of the Union, published in 2016, it does not only emphasize its intensified support for regionalism, but also its adherence to the TTIP – a clear demonstration of its transatlantic commitment to shared values – and signals Transatlantic partners’ willingness to pursue an ambitious rules-based trade agenda.
Moreover, the European Union has used regional integration to foster peace and stability among hostile states in the Mediterranean, Balkans, Caucasus by supporting the emergence of a common regional identity creation of “constructed” regional groups. The EU High Representative Federiga Mogherini said at a meeting of Regforum of Union for Mediterranean that “The two things have a connection, and the European history has shown us over decades, if not over centuries, that the less integration, the less cooperation you have at regional level, the more conflicts you are likely to have and, on the other side, the more conflicts and tensions you have, the more difficult cooperation and integration become”.
Recent developments point to an emerging divergence in understanding between the Transatlantic Alliances, with new approaches to regional groupings and regionalism identifiable both in speeches made by the leaders on the two shores of the Atlantic and in a strategy paper of the European Union. These differences may be partly explained within the framework of the changes in economic policies that emerged as a result of the efforts to find a way out of the crisis and the global Keynesian resurgence. Following the global financial crisis of 2008, reapplication of a Keynesian led to the argument that Washington consensus was over, and that this led to a return to embedded liberalism. States seemed to be more skeptical of free markets, and are choosing to focus more on domestic stability, seeking to promote local industries instead of focusing on attracting outside capital.
One of the first actions by the President Donald Trump after entering the Oval Office on January 20 was to sign an executive order withdrawing from the TPP, removing the TTIP from the White House website and signaling his intention to seek renegotiation of the North Atlantic Free Trade Area Agreement (NAFTA) with Canada and Mexico. President Donald Trump has spoken publicly about his preferences for bilateralism and bilateral trade over multilateralism and regionalism. He pledged further to impose tariffs on imports and to crack down on American companies manufacturing overseas in a bid to reverse the US trade deficit, as protectionist measures that point to the end of neoliberal economic policies in the United States.
All that aside, there has been a remarkable increase in regional projects, accompanied by high levels of economic interdependence that have emerged as instruments of openness and liberalism. The rise of regions attempting to speak with one voice through regional organizations and the strengthening of the external relations of the European Union with other regions has paved the way for another form of interaction – known as inter-regionalism – over the past few decades. The new US administration’s economic approach clashes with this understanding, and with its Transatlantic partner’s focus on regionalism, which is still based on regional arrangements that have been used to promote and consolidate domestic reforms that liberalize markets and foster democracy.
The regionalism was previously supported by the United States and the European Union to rebalance their influence vis-à-vis emerging economies, although all this has changed with the entry into office of the Trump administration. Recent decisions taken by the White House raise questions that what kind of a new economic order the United States visualizing, and what will be the role of its Transatlantic partners in this emerging new economic order, in that it is less likely to be based on the common values and norms of the Transatlantic partners in the post-western world.