Shadow Government

Will Ukraine Tip the Balance on the Mired Transatlantic Trade Deal?

What should be made of the West’s response to Russia’s capture of Crimea? The question itself suggests that there has been a unified, coherent response — an impression that the G7 meeting in Brussels this week was certainly meant to convey. The fissures in the Western coalition, however, have been all too obvious. Yet to ...


What should be made of the West’s response to Russia’s capture of Crimea? The question itself suggests that there has been a unified, coherent response — an impression that the G7 meeting in Brussels this week was certainly meant to convey. The fissures in the Western coalition, however, have been all too obvious. Yet to be seen is what consequences these divisions within and between Western nations might have.

The internecine squabbling has taken some obvious policy responses off the table. For a trade maven, the persistence of political obstacles to cooperation is most evident in the slow moving case of the Transatlantic Trade and Investment Partnership (TTIP). At a time when European members of the transatlantic alliance may be facing the costs of broken trade ties with Russia, a speedy conclusion to the TTIP would seem a clear move. After all, the United States and the European Union have already pledged to complete the agreement and had already, initially, set a goal of concluding the talks this year. If anything, the Ukraine crisis should have bolstered U.S. and EU resolve, but any acceleration of the TTIP talks remains exceedingly unlikely.

The obstacles all lurk at the subnational level. A first step for President Obama would be to seek Trade Promotion Authority (TPA). If he were to do so, he would have to overcome the staunch opposition of Senate Majority Leader Harry Reid (D-Nev.) and House Minority Leader Nancy Pelosi (D-Calif.), along with the skepticism of new Senate Finance Committee Chairman Ron Wyden (D-Ore.). He would have to counter opposition from organized labor. And these are just the procedural obstacles. On the substance of liberalization, not even the most happily-deluded free trader thinks it likely that the TTIP will bring about the demise of the Jones Act protecting American shipping.

Concerns in Europe are similar, only compounded by 28 member states negotiating as one. At the start of the negotiations, France staked out its unwillingness to open its market to American television and movies. Germany has serious concerns about data privacy. European negotiators have shown no signs of setting aside their qualms about genetically modified organisms in their food, nor their attachment to the Common Agricultural Policy.

Moving beyond the confines of the TTIP, one sees further domestic obstacles. Should the United States commit to expand exports of natural gas? The issue of expanded energy production and trade is a contentious one within the Democratic party. The Obama administration just granted a permit for one new Liquid Natural Gas (LNG) terminal — on the West Coast. The G7 statement on the Ukraine crisis made no mention of further LNG export commitments. (Lest one think that the time lag in establishing LNG trade between the United States and Europe renders the point moot for this crisis, see this story from the Financial Times on Eastern European negotiations with Gazprom.)

In Europe, should France forego lucrative naval sales to Moscow? Should the UK forswear lucrative Russian finance and real estate deals in London? Should Germany set aside a raft of economic projects? In principle, all of these nations support a commitment to territorial integrity as described in agreements such as the Helsinki Final Act or the Budapest Memorandums on Security Assurances. But it is painful to bear the costs, such as meeting NATO’s requisite 2 percent of GDP spent on defense.

The United States has mustered some potentially biting sanctions against certain Russian individuals and institutions. It is interesting to note that these, too, operate at the subnational level – not a slap at Russia, the country, but at selected people and, especially, a bank close to the Russian leadership. This may be part of a calibrated response that leaves bolder measures in reserve should Russia take further steps, such as an invasion of Eastern Ukraine. Peter Feaver and Eric Lorber have ably described the challenges in deploying this sort of measured response.

The difficulties to date of delivering concerted action allow for a number of different interpretations:

  1. 1. In a globally integrated world, it is just harder to apply sanctions than ever before, since the costs are so high.
  2. 2. It is not so much that the challenge of concerted action is any greater than in the past, it is a failure of leadership skill and of emphasis.
  3. 3. Whether sanctions are easier or harder – who cares? Individual national economic measures will suffice.
  4. 4. While the West’s response has been a bit tepid so far, that’s because Russia’s transgression was limited, as it has historical ties to Crimea and Ukraine isn’t part of NATO. If Russia were to cross real red lines, the West would get its act together.

The first possibility is unpersuasive; economic integration was high on the eve of World War I, as were the costs of systemic breakdown. It all happened anyway.

On the second, Peter Feaver makes the case that the Obama administration has not done all it might to strengthen the European alliance. In the case of TTIP, President Obama could have done far more by making a strong case for TPA legislation in his State of the Union address and by leaving Max Baucus in the Senate to see the legislation through. The willingness of the President to take on members of his own party would have indicated his commitment to strengthen the trans-Atlantic bond and served as an example for allies.

As to whether national measures such as the recent U.S. sanctions will suffice, this depends in large part on what objective they are meant to achieve. The broader strategy has not been clear. If the goal is to prompt a Russian withdrawal from Crimea, they almost certainly will not suffice. If the goal is to show Russia that its actions will be costly, they might. The latest estimates are that Russia is suffering significant capital flight. Investors are likely afraid of an escalation. If harsher measures do not follow, it is unclear whether this cost to Russia will persist. Putin surely recalls the way the Georgia invasion led to few lasting consequences.

The fourth point is, perhaps, the most disturbing. Ideally, in this sort of contest, the West would like to exaggerate its resolve early as a means of deterring Russia. The outcome in which the West appears weak and divided, but really intends to fight hard, is one with the highest odds of ending up in dangerous and avoidable conflict.

It is indisputably difficult to pull together domestic and international coalitions to undertake difficult tasks, but this has always been the case. If President Obama, as a leader, is to rally allies through a call for sacrifice, the strategic objectives must be clear, the seriousness of the situation conveyed, and the willingness to undertake political challenges demonstrated through example. All of those steps are feasible; none are easy.

Phil Levy is Senior Fellow on the Global Economy, The Chicago Council on Global Affairs, and teaches strategy at Northwestern University’s Kellogg Schoool of Management.
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