Dr John Hulsman
Contents
Introduction: The real lesson of September 11
A real alternative
The Economic Argument
Sharing a common politico-economic culture
The geopolitical argument
The Way Ahead
Conclusion
Acknowledgements
Endnotes
Appendix
Countries seeking GFTA membership status should:
Introduction: The real lesson of September 11
I cannot begin to talk of preserving and expanding the special relationship in the new era without describing the tragedy that ushered in this new epoch, the events of 11th September. I was sitting in a Heritage Foundation strategy meeting, discussing the upcoming Doha global trade round on the top floor of our building, at the base of Capital Hill. As I looked out that day, across a clear blue Washington autumn sky, I saw a sight that has not been seen in 187 years – smoke billowing over Capital Hill.
That first shocking day, the bloodiest in American history since the Wilderness Campaign of Grant and Lee in 1864, I received a spontaneous, universal outpouring of support from almost every British organization and person that I know well. To a man, the response was the same: as during every crisis, we stand with you, we support you, and together we will defeat evil. This has been the overwhelming lesson of the old era: that, as Baroness Thatcher told me, whatever good has occurred in the world you will find our two countries at the base of it. This remains the seminal message of the new era as well.
Our arguments (and they are real) are intense, yet family quarrels. They should not obscure the hard, pragmatic reality that about the third reaction of every American President in crisis, after ‘Good Grief’ and ‘What is the press reporting?’, is to say, “We had better talk to London.” This mutuality of political and economic interests (as well as all the cultural affinities) is so commonplace as to often escape remark. And it is precisely what the US will lose if the UK is subsumed into the EU.
For not all responses to the tragedy of September 11 were as unambiguously supportive. Romano Prodi, addressing the European Trade Union Confederation, detected one positive consequence of the September 11 attacks. “The school of thought which defends unbridled liberalism will no longer be able to be taken as gospel”, because the world had seen the damage caused by capital movements to finance terrorism.1 Likewise Louis Michel, the Belgian Foreign Minister, who speaks for the whole of the EU as his country holds the rotating presidency at present said there were, “limits to solidarity” with the US and gave warning that Europe would not be “blindfolded” into support for the Anglo-American coalition leading the fight against terrorism.2 This less than unambiguous support is just a foretaste of what will follow if the EU’s Common Foreign and Security Policy (CFSP) becomes genuinely effective.
The events of September 11, far from proving that closer EU integration is the way forward for the UK, seem to suggest that the UK follow an entirely different direction. This crisis illustrates that within Nato, only the US and the UK can act globally and genuinely in concert in terms of military, economic, and diplomatic strategies relating to crises. Given the rest of the Nato members’ attitude to defense spending, they can presently do little more than cheer from the sidelines. If the UK joins the euro, some sort of confederal Europe becomes a reality. If CFSP as part of this begins to function, however badly, then Belgium, Greece, Luxembourg (or any of the smaller EU states) could, given the Gaullism inherent in the EU, veto Britain acting in the current magnificent manner that it has done. The days of the UK being Sundance to America’s Butch Cassidy, and the concomitant genuine influence that this brings, will be a relic of the past. This is the strategic argument that Prime Minister Blair is incapable of seeing. He has been magnificent during the early phases of the war against terror, as have been the whole of the British people. It is to preserve the special relationship that we Americans who value it must vehemently oppose the Prime Minister’s ambitions to join the euro. Such a policy is not in America’s interests; it is not in Britain’s interests. Surely the lesson of the tragedy of September 11 is that the Special Relationship is all that is standing between much of the world and chaos and barbarism. 57% of the British people, in a current ICM poll, think that the case for keeping the pound is stronger after the terrorist attacks.3 We must save the Prime Minister from misjudging this fundamental lesson of history. The consequences of failing to do so would simply be too great.
A real alternative
That the British people are looking for alternatives to the EU can be in little doubt. In a May 2001 MORI poll, 73% of those polled were against Britain adopting the euro, with only 27% in favor. Only a bare majority of those asked (51-49%), were for staying in the EU at all.4 Nor is there much doubt as to the obvious geopolitical alternative to closer ties with the EU. When asked in a November 1999 Economist poll who was the UK’s most reliable ally in a crisis, 59% of those polled said the US, with only 16% paying Europe that compliment. People in the UK remain profoundly skeptical of Europe and the euro; this dissatisfaction will lead them, sooner or later, to cast about for a viable alternative to being swallowed by the EU. Thus, British public opinion is clearly ready to entertain a discussion of American alternatives to the UK being subsumed into the EU.
This debate cannot begin a moment too soon. For the Special Relationship is now being called into question. A seminal decision regarding its future awaits Britain early in the new century. A referendum on Britain’s entry into the euro-zone may occur as early as this parliament. A 'yes' vote would irrevocably merge British sovereignty into a larger European supranational construct, if the rhetoric of the current Euro-zone members is to be believed. This is, quite simply, the last real chance for Britain to choose an alternate future path, one that recognizes that its natural economic and political partner remains the United States and not the European Union.
Assuming the Conservatives campaign for a 'no' vote in a euro referendum, however well they put their argument, however skillfully they deconstruct the 'yes' case, their task is an essentially destructive rather than a creative one. This is a charge that has dogged conservatism in both the US and UK since the glory days of Ronald Reagan and Baroness Thatcher; one knows what conservatives are against, but what are they for? This damning question is invariably what Labour is bound to ask in the upcoming British referendum. Silence is not an effective answer, either politically or intellectually.
My proposal is that, as an alternative to Prime Minister Blair’s ‘third way’ push for ever closer integration with Europe, we should rally round a rival standard: Britain’s entry into a Global Free Trade Association (GFTA), with the US and the UK as charter members. Such a plan requires the UK to shift its politico-economic focus from Europe and instead return its gaze to what is clearly the most successful partnership of the twentieth century. A Global Free Trade Association represents the kind of international institution conservatives ought to favor; a coalition of the willing determined to maximize trade liberalization throughout our member states.
What I want to focus on tonight is delineating the American case for the UK keeping the pound and establishing an even closer relationship with the US. This argument is critical to make; the development of any British alternative to euro membership must involve a confluence of interests between the US and the UK. While the British case for keeping the pound is well-known, thanks to many of the people in this room, the twin American argument has been seldom remarked on, and it is critical. For if the US cannot be convinced to join with the UK in some sort of closer relationship, alternatives to euro membership mean little. The case for an even closer Special Relationship, which can be made economically, culturally, politically, and geopolitically, is an essential part of the anti-euro dialogue. The good news is such a case can be made; indeed it must be made.
The Economic Argument
First, the US is already deeply commercially enmeshed with Britain; further trade liberalization would result in immediate and significant benefits for the American economy. The US accounts for around 50% of foreign direct investment (FDI) in Britain, with Germany and Japan, the next largest source of FDI, accounting for only around 8% of the UK’s total.5 40% of all American investment in Europe is in the UK. A GFTA would be building upon business networks that already exist and would enhance this already incredibly lucrative relationship. For instance, a GFTA that is dedicated to the freer movement of capital between its members and is determined to abolish hidden tariffs would prove an economic bulwark for both the US and the UK.
Besides there being advantages to joining a GFTA with the US, there are significant economic dangers to the UK adopting the euro. Due to the Thatcher revolution, Britain remains the largest recipient of foreign direct investment (FDI) in the European Union. In 1999, it absorbed 39% of the EU total, more than France and Germany combined.6 The US and the UK are the two largest recipients of FDI in the world. This privileged economic position would be imperiled by euro membership. There can be little doubt that if the UK joins the euro, further economic harmonization with the rest of the union is inevitable. As Chancellor Schroeder put it, “An internal market and a single currency demand more energetic harmonization of fiscal policy, especially with regard to taxes on business, the taxation of capital gains, the taxation of energy and the organization of VAT.”7 Given the social democratic nature of most of the member states comprising the EU, and of Brussels itself, there can be no doubt such harmonization would be upwards. In essence, in joining the euro, the UK is being asked to give up the competitive advantage it has won as a result of the Thatcher revolution. If Britain joins the euro, it loses all the economic advantages that are the reason American businesses invest in the UK in the first place.
The changed nature of the post-Cold War era itself has made a significant US–UK economic link possible. Being close, as the UK is to the continent, no longer translates into greater volume of financial interactions compared with trade with a country far away, as it has done throughout history. In the new era, the concept of location has been transformed as the result of the telecommunications revolution that is such a salient characteristic of the age of globalization. To some extent the Internet has epitomized this death of distance. The centrality of a US–UK trade link would not have worked nearly as well in the age of the sailing ship, or even when the Treaty of Rome was signed in 1957. But globalization has made such a link very possible as the above economic figures indicate.
Sharing a common politico-economic culture
Second, the US and the UK share a common politico-economic culture; this makes a trade combination between them far more likely to prove economically successful. In the era of globalization, the world can best be divided into three camps, exhibiting markedly different strains of capitalism: Statists, Reaganite/Thatcherites, with advocates of the third way vainly trying to square the circle of finding a coherent middle way between the two. Germany and France, with their reliance on a massive role for the state in their economies, lavish tax and benefits systems, structurally high unemployment (the US unemployment rate is roughly half that of France, Italy, Spain, and Germany) and greater tendency toward protectionism, are clearly statist in politico-economic culture. A most curious phenomenon is that the statist model has been dominant on the continent; all the major parties in both France and Germany share a common antipathy to the Reaganite/Thatcherite model.
This is not yet the case in the UK; Prime Minister Tony Blair has yet to fully overturn the effects of the Thatcher revolution relating to privatization, deregulation, and a more market-oriented approach. It is simply a fact of life that continental Europe is largely statist and that this politico-economic orientation is increasingly incompatible with the Anglo–Saxon form of capitalism. In no other two countries has that culture flourished for so long and so successfully as it has in the United States and the United Kingdom.
It is no accident that the freest economies in the world have generally adopted the Anglo–American capitalist model of development, with its openness to foreign trade and investment. According to The Heritage Foundation’s 2001 Index of Economic Freedom, 7 of the 10 freest countries are former colonies of an 8th, the United Kingdom (Bahrain, the United States, Australia, New Zealand, Hong Kong, Singapore, and Ireland).8 Switzerland also ranks highly partly due to an Anglo–American link; the Swiss adopted their own variant of federalism and individual freedom when they modeled their Constitution after that of the United States. This degree of economic freedom which characterizes the Anglo–Saxon model, compared with statist Europe, has real world ramifications. For example the United States, easily the largest market of these freest economies, has significantly increased its potential growth rate in the 1990s - that is, the extent to which it can grow without triggering inflation. The OECD estimates the US can grow at a rate of 4% per annum without inflaming inflationary pressures; the comparable figure in the euro-zone is only 2.5%.9 Thus, these freest economies tend to do the best.
The Anglo–American anti-statist politico-economic cultural model is the principal reason that, according to the OECD, since 1970 America has created an additional 50 million jobs while Europe has not created any net private sector jobs in the last 30 years.10 This is due to the EU’s more corporatist approach, as statism advocates a larger role for the government in the marketplace, a padded safety net and, correspondingly, espouses a greater advocacy of protectionist doctrines to shield these inefficient practices. This has led to European-wide economic stagnation, as the euro-zone has found it more and more difficult to compete worldwide. Also, unemployment in the euro-zone is double that of America, and is largely structural in nature. Some 40-50% of the unemployed in Western Europe have been jobless for more than a year, in contrast to only about 10% in the US.11 A lack of faith in Europe’s ability to overcome its structural inefficiencies is a primary reason the euro-zone has experienced massive capital flight since the new currency’s inception, dramatically driving its value downwards. The choice for the British public seems to be clear; either closer economic ties with the museum of socialism, or closer links with the US, which has proven over time that it stands in the vanguard of globalization.
Excessive regulation is the second mortal blow to statism; as former US Treasury Secretary, Larry Summers, notes, “it takes 12 times longer to set up a new business in Europe than in the US, and 4 times the cost.”12 The EU has become a statist bureaucratic monster since its inception. The total number of regulations, directives and legal acts in force has climbed from 73 in 1957 to 23,027 in 1996.13 Nor is this forest of regulation readily comprehensible. As Bill Jamieson points out, “The Lord's Prayer runs to 56 words, the Ten Commandments to 297, the American Declaration of Independence to 300. The EU Directive on the export of duck eggs to 26,911.”14 The price of such excessive regulation is the stifling of economic growth.
Nor should the European Union as an institution be looked to as a harbinger of economic reform, and as a reason why Britain should shun a closer trading link with the US. While there are undoubtedly some aspects of Brussels that trend in the direction of a more open economy, the majority of the characteristics of the EU pull in the opposite, statist direction. The EU’s Common Agricultural Policy (CAP), which consumes around half of the entire EU budget, accounts for 85% of global agricultural subsidies.15 The average family in the Eurpoean Union is thought to pay around $1,200 extra each year for food as a result of the EU’s farm policies.16
The very institutional structure of the EU illustrates that the more integrated Europe is, the more protectionist its leanings become. The external activity in which the Union is most perfectly integrated is regarding trade policy, where, for all practical purposes, Europe behaves as if it were a sovereign state. It is also the area in which the EU and America disagree most fiercely. From an American point of view, this is not an encouraging advertisement for further European integration.17 For it is almost beyond question that stormy times lie ahead for the US–EU relationship. This is largely because they espouse differing and often competing forms of capitalism. As Hindley notes, trade policy is a reflection of the polity deploying it.18 I quite agree with Pascal Lamy, the EU’s Trade Representative, that trade disputes, such as the current row over genetically modified foods, stem from deep moral and cultural differences between the US and the EU.19 This is precisely why it is highly unlikely that Europe will embark upon fundamental economic reform. Given the popularity of Europe’s statist welfare state arrangements, it is difficult for governments to tinker with these arrangements without risking the wrath of their voters. The statist politico-economic culture of Europe is the direct cause of the EU’s economic sclerosis and also explains why the current stagnant European economic system is unlikely to fundamentally change.
There are myriad examples of protectionism being used to shield this failing statist system. Patrick Messerlin, a leading French economist, calculated that trade protectionism costs the EU between 6% and 7% of its GDP per annum, some $600 billion, or equal to the annual economic output of Spain.20 This protectionism ranges far beyond merely agriculture, proving just as prevalent in the manufacturing, textiles, and clothing sectors. Structural and regional funds for the less developed members of the Union have proven to be national feeding troughs, thinly disguised forms of excessive subsidization of national economies. The Social Chapter, and generally attempts at harmonization, have been used as tools to protect over-generous French and German labor legislation against the competitive pressures from smaller, poorer European countries that may have initially had an economic advantage in that they had less regulated labor markets. Given the inefficiencies inherent in the EU's statist politico-economic model, Europe will find it increasingly hard to compete in the era of globalization. Protectionism is the most obvious answer to the EU's economic dilemma; such a policy is obviously not in American interests.
European protectionism, embedded in its inefficient statist politico-economic culture, is a bottleneck to free trade at both the global and regional levels – a meaningful new trade round at Doha is impossible to initiate without CAP reform, as is a Trans-Atlantic Free Trade Area (TAFTA). The Bush administration, rather than giving up in disgust in the face of the EU’s protectionist leanings, should instead advocate GFTA as a way around the EU’s protectionist-induced logjam.
The geopolitical argument
Third, from an American point of view, the Anglo–American grouping will also geopolitically protect the US from whatever the outcome of the European experiment in supranationalism. We need to be as clear-eyed about this as the French and Germans are. They have no trouble reconciling the ambiguity that the US is both an ally and a rival of theirs; such are the complexities of the world. A poll conducted in France by CSA in April 1999 showed that 68% of the French said they were worried about America’s status as a superpower. Only 30% said there was anything to admire across the Atlantic.21
Nor is there a genuine teleological argument here; there is no doubt that a major strain of Euro-federalism is anti-American in its thrust. We need to stop thinking that French rhetoric is not serious, that it is just a cultural eccentricity. Rather, it reflects the honest beliefs of a people who have a very different political and economic agenda from that of the United States. As Pascal Lamy, the EU’s Trade Commissioner has observed, “I know the easiest way to get a cheer in Brussels is to stand up in the European Parliament and denounce America.”22 There is a danger for the US if the EU proves to be too successful in its attempts at centralization. If it succeeds in becoming some sort of coherent federal structure, it may well try to sever the transatlantic link. As Henry Kissinger has suggested, European identity is now defined largely in terms of an “almost congenital opposition to the United States.”23 The EU may even attempt to become a rival hegemon in the long-term. This is fundamentally not in America’s interests. There is little doubt that such a goal is the object of many European centralizers. Georges-Marc Benamou, in Le Dernier Mitterand, has the elderly French President saying,
‘France does not know it, but we are at war with America. Yes, a permanent war, a vital war, a war without death. Yes, they are very hard the Americans, they are voracious, they want undivided power over the world.’24
Likewise Gerhard Schröeder, in a television interview December 28, 1999, said, ‘Whineing about US dominance does not help, we have to act.’ He then went on to advocate that Europe must act more like a single country if it wants to challenge the US economic and political dominance.25 Dr. Kissinger noted that, as the preponderant power in the world, it is precisely such a challenge, from however seemingly benign a source, that America must be prepared to counter.26
In many ways then, the current increasingly rocky relationship between the US and the EU signals the final failure of America’s 45-year-old policy toward Brussels. It is not that the UK and the US are not as close as they once were, as some suggest, its just that the US insists on giving the UK such bad geopolitical advice. America has continued to endorse the long-held false vision that a Britain at the center of increased European integration (symbolized at the moment by adoption of the euro) will somehow tame the Franco–German axis by transforming it over time into a more pro-free market, pro-trade, pro-American entity. Instead, if anything, the reverse has held true. Brussels has obliged Britain to support policies that are less pro-free trade, less pro-free market, less pro-American. What America should now say is that the UK will not play a decisive role in what becomes of the EU (as always that will be left to Germany and France) but it can play a critical role in assuring an American-led bloc will maintain its dominance by a wide margin over an integrated statist European rival. As such, Britain remains absolutely central to long-term American geopolitical calculations.
The Way Ahead
So there is a clear and compelling American case for Britain staying out of the euro-zone and instead entering into a GFTA with the US. The political way ahead for this revolutionary new trade nexus is straightforward. After campaigning for the euro option in the context of an EMU referendum and losing, the Blair government will either fall or be gravely weakened, as it is so closely associated with entry into the euro-zone. Either with a desperately weakened Blair or a Tory government, flush with triumph after winning the referendum, Britain’s entry into a Global Free Trade Association with the US becomes the logical policy alternative. If the Prime Minister sensibly decides not to call a referendum he is unlikely to win, we should advocate the establishment of a GFTA as a policy initiative, nonetheless, building on the bilateral trade deals currently being negotiated between the US and Australia, Singapore, and Chile, all of whom qualify for membership in the GFTA.
Such a strategy will pressure both the Prime Minister and Brussels to explain why they are against closer ties between the US and the UK. Britain should attempt to renegotiate the Treaty of Rome, allowing it opt-outs over all pieces of legislation relating to further losses of sovereignty. In order to participate in both an EU-led trading bloc and a Global Free Trade Association (GFTA) with the US, the UK would need to relax its EU harmonized rules in the case of goods and services (which are almost always statist) when required to do so by the GFTA. Being able to derogate from EU rules in the case of internally traded goods and services from non-EU countries would be similar to obtaining an opt-out. This would empower the UK with the ability to enter into bilateral trade negotiations with the US to join such a GFTA.
I believe such talks are certainly desirable from a British point of view. I want to make this very clear; there is no objective reason why the UK’s entry into a GFTA should be an either/or proposition regarding its continued membership within the EU. If the Union really is the benign organization it claims to be, it should welcome the further global trade liberalization and pro-American stance such a new organization would profess. It is only if Brussels has a hidden anti-American, protectionist agenda that it ought to object to such an initiative. Given what the EU has been telling us all along, surely this cannot be possible?
Of course EU intransigence is not only possible; it is downright likely. But here the EU runs into a legal problem of its own. Senator Phil Gramm has observed that two provisions of the Treaty of Rome limiting Britain’s ability to enter into other trade expansion agreements (such as a GFTA arrangement with the US) violate the General Agreements on Tariffs and Trade (GATT) rules. GATT trade ministers said in 1994 that, “A regional arrangement must facilitate trade among its members, and not raise trade barriers between its members and other nations.” Surely the EU has not met this requirement; the Common Agricultural Policy leaps to mind. It would seem that the European Union is undermining the letter and spirit of the GATT, and must therefore modify Treaty of Rome Articles 133 and 310, which limit the sovereign powers of its members to negotiate trade agreements with non-EU countries, as they are inconsistent with Article 24 of the GATT. If this is so, ‘the customs union problem,’ part of the mortar around the protectionist EU wall, ought to come down with a crash.
It is a fact that in order to join a GFTA with the US, the UK will have to legally recalibrate its trading regime with the EU. In my opinion, it should do so anyway, regardless of the GFTA opportunity. Such an approach is at odds with the EU’s notion of constantly expanding its competencies, as it sees itself destined to forever increase the scope of its powers. This entrenched concept will need to be politically overcome. But again, this reality needs to be dealt with anyway.
Even if such negotiations, as is likely, fail, Britain should attempt to retain the obvious benefits of belonging to the Single Market. It should then re-enter EFTA, joining the European Economic Area (EEA) along with Norway, Iceland, and Liechtenstein, which is the linking of the single markets of the EU and willing EFTA members, excepting matters relating to the Common Agricultural Policy and fisheries.27 Such a link would preserve British sovereignty (a vital political concern), keep the UK for all intents and purposes in the Single Market, while allowing it to negotiate a closer trading status with the US. EEA membership entails no transfer of legislative power from the parliaments of contracting parties to EEA institutions. Decisions by the EEA joint committee (composed of EU and EEA members) in principle need to be transposed into national legislation to be binding in each EFTA country. Again, only if the other member states of the EU refuse to allow Britain to make its own sovereign decision regarding initiating closer US–UK trade links, does a fundamental choice need to be made. I believe the facts in this speech point out that this fateful choice should be fairly simple.
This approach dovetails nicely with the Bush administration’s trade strategy of favoring free trade by any means. Such a policy will benefit the US by continuing to expand its economic opportunities, while at the same time making it clear to the EU that it will not be allowed to become an obstacle to further efforts at free trade around the world – its protectionist policies will only restrict European economic opportunities. As such, the administration should lobby Congress to secure trade promotion authority (TPA), while finalizing bilateral trade agreements with countries such as Chile, Singapore, and Australia. At the same time the White House should pursue regional free trade initiatives in the Western Hemisphere by making the Free Trade Agreement of the Americas (FTAA) a more substantial part of overall American foreign policy. Lastly, the US should establish a GFTA in which countries genuinely committed to free trade group together to further liberalize their comparatively free markets for mutual benefit. Such an all-encompassing strategy will force the EU to think again about its foot-dragging on market liberalization, while conclusively pyschologically changing the global free trade dynamic by making free trade be seen as a reward, rather than as a political concession.
The GFTA will be founded on a genuine shared commitment to increasing trade between its member states and at a global level. It will serve as a practical advertisement for the enduring global benefits of free trade as the advantages of such an association become apparent; an example all the more precious in the wake of the Seattle WTO debacle. It would presently encompass New Zealand, Hong Kong, Ireland, Chile, Singapore, Denmark, Luxembourg, Estonia, Australia, Finland, Iceland, the UK and the US. The GFTA will be a voluntary and inclusive grouping, whose expanded membership should be based solely on a policy commitment by its member states to a genuinely liberal global trading order. The plan embraces a commitment to a state’s sovereignty. Its economic policies (and the choices they represent) will determine whether or not it qualifies for the grouping. This commitment will be characterized by a state’s meeting certain numerical targets (such as those used in the methodology employed in The Heritage Foundation and The Wall Street Journals’ 2001 Index of Economic Freedom) regarding a country’s openness, relating to its trade policy, capital flows and investment, property rights and low level of regulation (for details of the plan, see appendix.)
Members will thus select themselves based on their genuine commitment to a liberal trading order. It is hoped that membership will quickly grow, as a further 19 countries are within sight of the numerical target for accession (including Bahrain, Canada, El Salvador, the Czech Republic, Italy, Spain, Poland, Hungary, Switzerland, Thailand, and the UAE.) Given my firm belief in the economic superiority of the Anglo–American economic model, such an organization will have a disproportionate number of English-speaking members, certainly in the short- and medium-term. However, the numerical target methodology allows for self-selection, giving the whole project an inclusivity it would otherwise lack, while advancing our common desire to strengthen the ties that bind the English-speaking world together. The Global Free Trade Association’s internal initiatives will include: freer movement of capital within the new grouping; establishing common accounting standards; setting uniform numerically-driven very low rates of subsidy, as well as diminishing overt and hidden tariffs.
And what of the NAFTA option that a number of my anti-euro allies advocate? I favor free trade by any means. As such, I would welcome the UK being asked to join NAFTA, as some have proposed. It is not that I am against this, I just do not believe it will work politically in the US. Currently in the US, NAFTA is wrongly viewed in an unfavorable light. The establishment of NAFTA was such a fraught process that there are examples of congressmen on both sides of the aisle who lost their jobs over this one issue. There is a misplaced public perception that banding together with Mexico and Canada has led to the loss of American jobs, so an extension of this unpopular agreement is unlikely to find support within the government. Witness Chile’s futile attempts to join the organization. Blessed with a far more vigorous economy than Mexico’s, Chile has all but given up on NAFTA accession after waiting years to join. The politics of NAFTA are simply toxic, even when dealing with a staunch ally such as the UK.
However, a GFTA encompassing deserving Central and Eastern European states, the US, the UK, and our Asian allies will force the EU core clustered around France and Germany to at last face up to its statist flaws. The GFTA approach reinforces positive behavior while being seen as fair. The numerical target that determines membership in the GFTA allows for self-selection, giving the whole project an inclusivity the NAFTA alternative lacks. Advocates for the GFTA want to form an association with countries that share a common politico-economic culture pertaining to trade; the process is not an example of American fiat. Unlike the NAFTA proposal, it is neither Euro-centric nor dominated by American desires. These facts can only increase its attractiveness around the globe.
Conclusion
Based on the American interests I have outlined, I firmly believe the GFTA is an idea whose time is rapidly coming. I fervently hope the GFTA proposal will continue the process of disarming British concern about the UK being isolated if it refuses to accept the euro; there is a realistic alternative out there.
This new Anglo–American economic tie will simply build upon the older links that have made this relationship one of the most fruitful and enduring in history. This plan exemplifies conservatism at its Burkean best, proposing policies based on conditions that already exist rather than, as with the EU, trying to legislate sand castles into reality. For as the great parliamentarian realized, “politics is philosophy in action”. We conservatives know what our first principles are – know instinctively the enduring value of the Special Relationship. Now is the time to turn that philosophical knowledge into practical policy action.
Acknowlegments
(Sudabeh Koochekzadeh was instrumental in both conceptualizing and helping prepare this speech.)
Endnotes
Financial Times (FT), “Prodi urges acceleration of EU integration,” October 12, 2001.
Ambrose Evans-Pritchard, “Blair overacting, says EU envoy,” The Daily Telegraph, October 16, 2001.
no-euro.com, October 5-October 11, 2001.
Peter Riddell, “Record lead for Labour,” The Times (London), May 24, 2001.
Kevin Brown, “US slowdown brings fall in investment inquiries,” FT, March 23, 2001.
Martin Wolf, “Closing in on the euro zone,” FT, February 20, 2001.
Andrew Haldenby, “Schröeder: euro means tax harmonization and ‘European government’,” no-euro.com, May 3, 2001.
See 2001 Index of Economic Freedom, Gerald P. O’Driscoll, Jr., Kim R. Holmes, and Melanie Kirkpatrick, eds (Washington: The Heritage Foundation and Dow Jones and Company, Inc., 2001).
“Working wonders,” The Economist, November 25, 2000.
“New studies highlight higher taxation and unemployment in Eurozone,” Business for Sterling Bulletin, no.49, June 29, 2000.
Assar Lindbeck, “Problems of Unemployment in Europe and the US,” United States Information Service, June 18, 1998, p.2.
Wolf, “Europe’s Growth Opportunity,” FT, September 10, 1999.
Bill Jamieson, Britain: Free to choose, (London: Style Publishing, 1998), p.19.
Ibid Jamieson, p.75.
Adam Entous, “Labor Groups Challenge WTO on Trade Round,” Reuters, November 29, 1999.
“From bad to worse, down on the farm,” The Economist, March 3, 2001.
Robert Cottrell, “Here’s the Beef,” The Economist, October 23, 1999.
Brian Hindley, “Liberalism and Illiberalism in the New Era,” European Integration and American Interests, Jeffrey Gedmin, ed., (Washington: The AEI Press, 1997), p.21.
Guy de Jonquieres, “Liberal with a Social Mission,” interview with Pascal Lamy, FT, October 21, 1999.
de Jonquieres, “Protectionism is Costing EU 6% of GDP,” FT, November 10, 1999.
Suzanne Daley, “Europe’s Dim View of US is Evolving into Frank Hostility,” The New York Times, April 9, 2000.
Charlemagne, “Pascal Lamy,” The Economist, July 7, 2001.
John J. Mearsheimer, “Kissinger’s Wisdom…and Advice,” The National Interest, no.65, (Fall 2001), p.124.
Conrad Black, “Britain’s Atlantic Option-And America’s Stake,” The National Interest, no.55, (Spring 1999), pp. 21-22.
Associated Press, “Schröeder to Europe: Unite Vs. US,” December 28, 1999.
Henry Kissinger, Diplomacy, (New York: Simon and Schuster, 1994), p.813.
Ibid Black, p.18.
Appendix
Proposed Criteria for becoming a member of The Global Free Trade Association – Compiled with Aaron Schavey, Economic Policy Analyst, The Heritage Foundation
Membership in the Global Free Trade Association (GFTA) is entirely voluntary and is not an abridgement of sovereignty in any way; members can choose to withdraw from the trading regime freely. The only other way to be removed from the regime is to cease to meet the numerical standards that, unlike those relating to euro membership, cannot be finessed. The GFTA will be founded around a genuine commitment to increasing free trade between its member states and at the global level. This commitment will be characterised by a state’s meeting certain numerical targets regarding a country’s openness relating to its trade policy, capital flows and investment, property rights, and low level of regulation. These categories fall into four broad areas that characterise a country’s commitment to a genuinely liberal trading order: a) freedom to trade, b) freedom to invest, c) freedom to operate a business without excessive burdens, d) and security in the investment.
To ensure that GFTA members are genuinely committed to free trade and that expanding trade with countries in the trading regime can realistically be achieved, the following criteria based on the 2001 Index of Economic Freedom are proposed.
Countries seeking GFTA membership status should:
Freedom to Trade
Receive a score of either 1 or 2 on trade policy. Countries with a score of 1 or 2 maintain average tariff rates below 9% and have low non-tariff barriers. For example, countries with low non-tariff barriers generally do not use import quotas or licensing requirements to restrict trade.
Freedom to Invest
Receive a score of either 1 or 2 on capital flows and investment, which is equivalent to countries possessing an accessible foreign investment code, treating foreign investment openly and impartially, and maintaining an efficient approval process. The only investment restrictions permitted for GFTA membership status are some restrictions on investments in utilities, companies vital to national security and natural resources.
Freedom to Operate a Business
Receive a score of either 1 or 2 on regulation. A country that has excessively burdensome regulations could deter trade. Investors may choose not to invest in a country because of the problems of opening a business or the high cost of doing business in a country. Countries that score either a 1 or a 2 on regulation maintain simple licensing procedures and apply regulations uniformly.
Secure Property Rights
Receive a score of either 1 or 2 on property rights. A country with well-established rule of law protects private property and provides an environment where business transactions can take place with a degree of certainty. Investors are more likely to engage in economic transactions when they know the judicial system protects private property and is not subject to outside influence.
Countries that generally set low tariff barriers and do not use excessive non-tariff barriers and do not put serious impediments in the way of foreign investment exhibit a fundamental commitment to free trade. It is important for countries to secure property rights and desist from excessively burdensome regulations as this ensures that expanding trade with such a country within the GFTA trading regime can be realistically achieved. Countries that maintain an adequate rule of law that protects private property encourage trade and investment. Investors are more likely to put their money in a country where the judicial system is transparent and enforces contracts. In addition, businesses are more likely to invest their money where regulations are not burdensome and where they are applied uniformly.
Based on the above mentioned criteria, 12 countries in addition to the United States presently qualify for the GFTA member status: Australia, Chile, Denmark, Estonia, Finland, Hong Kong, Iceland, Ireland, Luxembourg, New Zealand, Singapore, and the United Kingdom.
Twenty-four further countries are within one point (using the Heritage scoring system) of reaching the GFTA standards. If they choose to do so and follow slightly more liberal trade policies, such countries ought to be able to join the GFTA in the near future. They are: Austria, Bahrain, Belgium, Canada, the Czech Republic, Cyprus, El Salvador, Germany, Greece, Hungary, Israel, Italy, Japan, Netherlands, Poland, Portugal, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, United Arab Emirates, and Uruguay.