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June/July
2008 - CER BULLETIN, ISSUE 60
Obama says he is willing to speak to Iran directly, to convince the government to suspend uranium enrichment. McCain is not prepared to talk - at least not to the current government in Tehran. That matters to Europe. Britain, France and Germany, which lead the EU talks with Iran, are convinced that the US should at least try to speak to the Iranian government. Talks may not persuade the Iranians to stop enriching uranium. But without trying, the US and Europe will not be able to garner support for further UN sanctions from China, Russia and the rest of the world. And without concerted global pressure on Iran, the nuclear talks have little chance of succeeding. So Obama's view would be more helpful to Europe's Iranian diplomacy than McCain's. Obama and McCain also disagree on trade policy. McCain is an unabashed free-trader. Obama sees free trade as beneficial on balance, but says that those who lose from it need assistance. He says he would seek to renegotiate the North American Free Trade Agreement (NAFTA) and other free trade deals, to add social and environmental protection clauses. And he may be less keen than McCain to fight for an ambitious outcome of the Doha round of world trade talks - which would put him at odds with the EU. True, Obama may set aside protectionist rhetoric when in power (he needs to sound tough on trade to win over blue collar working class voters). On the other hand, the economic downturn may push the next US president - whoever he is - towards protectionist policies. Interestingly, Obama has focused his criticism of free trade on NAFTA rather than the trade deficit with China. And McCain is openly in favour of trading and engaging with China. There seems little divergence between the candidates, or between them and Europe, on economic relations with China. This should make it easier for the EU and the US to press China jointly to open its markets further, and to revalue the renminbi. Regarding the Middle East neither candidate wants to speak to Hamas, the radical Islamic group that controls half the Palestinian territories. Officially, Europe does not either, but in private some European leaders are wondering whether they should. The longer Hamas remains an influential force in Palestine, the more Europeans will move towards engaging it. In the long run, this move could lead to transatlantic friction - unless the next president rethinks his stance, which is not inconceivable: the candidates cannot freely speak their minds on such a sensitive subject during an election campaign. On Russia the candidates differ noticeably. McCain believes that the US can do without a close relationship with Moscow, given the minimal economic ties between the countries. And he wants to be tough on Russia over its undemocratic political system and its aggressive behaviour towards neighbours such as Georgia and Ukraine. His views are echoed in most of the Central and East European member-states and a few others like Sweden. Obama is less keen than McCain on installing missile defence systems (which the Russians hate) in Europe, and would make less fuss about Russia's internal politics. But like McCain, Obama would want to see Georgia and Ukraine in NATO, so both candidates would be at odds with Germany and France, which oppose NATO enlargement lest it irritate Russia. On the whole, US-European cooperation on foreign policy seems likely to improve, irrespective of who wins the elections: the next president will end the policies that most irk Europeans, like Guantánamo or opposition to a climate change agreement. In fact, given that Mitt Romney does not think Guantánamo is a problem, and that John Edwards and Hillary Clinton are more protectionist than Obama, Europe has arguably ended up with the best possible choice of candidates. There is a risk that the next US president will assume that the departure of George W Bush will automatically make the Europeans rally in support of American polices around the world. Such an assumption could lead to bitter disappointment in Washington. Obama's people seem aware of this risk. They say Obama would proceed cautiously, not making 'unreasonable' demands such as for the Europeans to replace the American troops that withdraw from Iraq. That would not fit into Obama's strategy anyway: he wants to use the spectre of US military withdrawal to unify Baghdad's warring coalition parties. However, at some point Obama would ask Europe to do more in Afghanistan, as would McCain. The next administration is likely to send more US troops there and expect Europe to do the same. It would ask European countries to reverse the steady decline of their defence budgets, and it would welcome a bigger role for the EU in European defence, provided this resulted in more military capability. On Afghanistan, the Europeans may disappoint the next president; on defence spending, they are almost certain to do so. Obama represents the cleanest break with America's least popular policies. As such, he is well positioned to repair the huge problem of America's poor image in many parts of the world. And that matters to Europe. The French president, Nicolas Sarkozy, once observed that the US, by virtue of its size and might, is the leader of the free world, and when it becomes unpopular, Europe's reputation suffers, too. A US which commands more prestige and authority would strengthen Europe's hand in dealings with Iran or China. Tomas Valasek is director of foreign policy and defence at the CER.
Four
pillars for an EU-India partnership
But the EU needs to pay more attention to its still under-developed political relationship with India. As the EU tries to extend its reach beyond its own immediate neighbourhood, India can help it to fulfil some of its key objectives, for example on climate change. Javier Solana, the EU's foreign policy chief, does not see India as a priority. At last November's EU-India summit in Delhi, the EU was represented by the prime minister and foreign minister of Portugal (which held the rotating presidency), Commission President José Manuel Barroso (also Portuguese) and trade commissioner Peter Mandelson. The Indians are not prejudiced against the Portuguese, but it is telling that Prime Minister Manmohan Singh (according to his officials) devoted more time and energy to preparing for his bilateral summits with Gordon Brown, Angela Merkel and Nicolas Sarkozy. Officials in Brussels and Delhi whinge about each other. Those from the EU complain that their counterparts in Delhi are arrogant and under-resourced; the Ministry of External Affairs has only three officials covering all of Western Europe and the EU. Indians moan about the patronising attitudes of Europeans and the Byzantine complexities of the Union; they dislike having to deal with the EU's institutions and member-states at the same time. The EU and India are negotiating a 'broad-based trade and investment agreement', which - if all goes well - could be concluded next year. The EU hopes that the accord will bring down tariffs and allow its companies to invest more freely in areas such as telecoms, legal services and insurance. India wants its nationals to be able to work more easily in the EU. It also wants to sell more services (such as IT and back office processing) to Europe, and hopes for fewer barriers to its exports in sectors such as textiles, chemicals, leather and food-stuffs. This year the two sides are due to review their 'joint action plan', an 80-page document that covers dialogues on a wide range of topics such as weapons proliferation, human rights, climate change, science, higher education, terrorism and space. When Indian and EU leaders hold their next summit, at Toulouse in September, they should seek to build the foundations of a genuinely strategic partnership, based on a few priorities that have long-term significance for both sides: • Climate change. Only a couple of years ago, many Indians thought climate change was someone else's problem. That has now changed. Although they are unwilling to accept binding commitments to cut carbon emissions, India's leaders know that they will have to be part of the global system that tackles the problem. Nobel prize winner Rajendra Pachauri has helped to raise awareness. Indians want access to European technologies that would enable them to use energy more efficiently, curb pollution and cut greenhouse gas emissions. • Africa. India wants to increase its presence in Africa, which it sees as a source of raw materials and as a market. But China keeps beating it to contracts to extract natural resources, and also exports much more to the continent. Singh launched a new charm offensive by hosting 14 African leaders in Delhi in April. India already offers billions of dollars of cheap credits and it plans a $10 billion investment fund for Africa. India, like China, has tended not to criticise African regimes that abuse human rights. But many Indians view Europe as less of a direct rival than China and are prepared to go some way towards the Europeans in accepting that governance matters. An EU-India dialogue on Africa could focus on joint projects to pursue common interests - for example, rebuilding war-torn regions such as Northern Uganda - and on the importance of governance. • Post-conflict reconstruction. India is one of the world's leading providers of peacekeepers, and currently has 9,000 blue helmets in Africa. However, India has had less experience of some of the broader tasks of helping societies to recover from conflict, such as co-ordinating the work of soldiers with civilian agencies and personnel. Recently, India has become a major provider of assistance to Afghanistan, where it (like the EU) wants to sustain Mohammed Karzai's government. Both the EU and India would benefit from exchanging expertise on peacekeeping and post-conflict reconstruction. • Counter-terrorism. Indians care deeply about fighting the scourge of terrorism. The EU-India dialogue on counter-terrorism has not achieved much, perhaps because the EU itself has almost no competence on the matter. However, a dialogue between India and the 'G6' (an informal group of the interior ministers of Britain, France, Germany, Italy, Poland and Spain) and the 'situation centre' (Solana's unit that collates intelligence from across the EU) could be productive. Indians have regarded the EU as not much more than a trade bloc because it has had nothing to say on the subjects they care most about. For example, the Europeans are divided over which countries should have permanent seats on the UN Security Council (which India wants to join) and whether to support the putative US-India nuclear deal. Yet neither the EU nor India sees the other as any kind of strategic rival. If the EU could engage the Indians on the subjects mentioned above, it might seem more relevant to them. The Europeans should also think about how they represent themselves to the outside world. The Lisbon treaty requires the EU to appoint a president, but that job in itself will not solve the representation problem. To quote one Delhi official: "If you want us to take the EU seriously, please appoint a president we have heard of." Charles Grant
is director of the CER. Europe
can afford to curb greenhouse gases
The ETS works by setting a limit on annual emissions of carbon dioxide - the principal greenhouse gas - and then distributing emissions allowances to industry. The objective is to ensure that the prices of goods reflect the environmental costs of their production. For example, a car produced in a low emissions factory would cost less than one built in a high emissions one, because the owner of the latter factory would have to buy more emissions allowances. Consumers would opt for the cheaper car and all factories would have an incentive to lower emissions. The industries currently included in the EU ETS - iron and steel, cement, glass and ceramics, pulp and paper as well as power generation and oil refineries - cover around half of the EU's emissions of carbon dioxide. The Commission proposes that these sectors should deliver two-thirds of the 20 per cent cut in emissions that the EU is committed to achieving by 2020. It therefore wants to place progressively lower limits on emissions from these industries, guaranteeing high carbon prices and hence strong incentives to reduce emissions. Industries from cement-makers to paper manufacturers and oil refiners have denounced the proposals. They argue that such unilateral action by the EU will damage Europe's competitiveness while doing nothing for the environment. Industries will simply migrate to locations where energy prices and environmental standards are lower. It is worth remembering that European countries do all kinds of things that, on the face of it, 'impair' their 'competitiveness'. For example, governments impose extensive pollution standards and rigorous health and safety rules. They also set comprehensive regulations governing working hours and wage rates, as well as all kinds of quality standards for consumers. Few advocate that Europe's economic prospects would be improved by abolishing such regulations. Far from damaging Europe's competitiveness, most of them probably boost it by forcing firms to use the latest technology, and by encouraging them to use labour efficiently. European economies remain successful despite - or perhaps because of - these policies. Measures aimed at curbing emissions of greenhouse gases should be seen in the same light. For all but a very small number of highly energy-intensive sectors (aluminium, cement and possibly steel) the price of carbon under the EU ETS will remain small, compared with variations in labour, energy and other input costs between EU and non-EU countries. Moreover, these industries account for a very small share of total economic activity, and the Commission has already raised the prospect of concessions to them, if they are able to prove that having to pay for allowances would force them to move production out of the EU. In short, the EU can afford to take unilateral action. But it almost certainly will not have to. The so-called Lieberman-Warner bill, which calls for mandatory caps on US emissions and the establishment of a federal ETS, goes before the Senate in June 2008. If it fails to pass then, it will almost certainly gain approval following November's Congressional elections, which are virtually certain to see the Democrats increase their majorities in both houses of Congress. All three remaining
candidates for the US presidency are supporters of the Lieberman- Warner bill.
Indeed, John McCain co-authored the McCain-Lieberman bill, a precursor to the
bill now before the Senate. He has perhaps done more than any other US politician
to advance the cause of climate change legislation in the US. Simon Tilford
is chief economist at the CER. Centre for European Reform © CER 2008
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