[Congressional Record Volume 143, Number 142 (Tuesday, October 21, 1997)]
[Extensions of Remarks]
[Pages E2025-E2027]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
RECOMMENDED READING ON THE CHANGING NATO AND THE EFFECT OF
GLOBALIZATION ON THE TRANSATLANTIC RELATIONSHIP
______
HON. DOUG BEREUTER
of nebraska
in the house of representatives
Tuesday, October 21, 1997
Mr. BEREUTER. Mr. Speaker, as chairman of the House delegation to the
North Atlantic Assembly [NAA], it is my distinct pleasure to call to
the attention of the House and the American people the outstanding
paper delivered by the gentleman from Virginia [Mr. Bliley] as chairman
of the NAA Economic Committee at the fall meeting of the NAA in
Bucharest, Romania, on October 9-13, 1997. Members of the House should
find this truly exceptional, incisive, and very timely presentation by
our colleague to be of great value and worth their reading time. This
is particularly the case because it focuses on two very important
subjects: First, the reasons for the continuing importance of the
alliance we know as the North Atlantic Treaty Organization [NATO] as it
expands to incorporate three additional member countries and reexamines
its mission, and second, the diverse set of changes affecting our
planet which we term globalization and specifically their impact on the
transatlantic relationship. The paper by our distinguished colleague,
the gentleman from Virginia [Mr. Bliley] follows:
[[Page E2026]]
NATO in the 21st Century: Economic Committee Chairman's Contributions
There are two kinds of economic issues that this committee
should discuss as we try to envision challenges and
opportunities to the Alliance over the next decade: those
that will directly affect what we might call the business of
NATO and those that will have an impact on the broader
transatlantic relationship. Let us first look at the direct
issues beginning with burden-sharing.
The end of the Cold War was quickly follows by large cuts
in defense outlays as NATO members sought to reap dividends
from the decline in threat. These reductions made perfect
fiscal and military sense, but also fueled a debate about
NATO's ongoing relevance. Some Americans for example began
again to ask why precious resources should be used to defend
the rich countries of Europe, particularly given the
unrelenting financial pressures arising out of America's
budget deficit, the declining threat and the need for new
domestic infrastructure investment. The Balkan war and NATO's
decisive role in quelling that disturbance amply demonstrates
the ongoing need for a transatlantic alliance. Yet, the old
burden-sharing debate will not go away. Indeed, NATO
enlargement will only fuel that debate, although most of the
additional cost burdens associated with enlargement will fall
on new members themselves. European initiatives to improve
mobility and lift become all the more important in an
enlarged NATO and insofar as enlargement encourages NATO's
European members to move in this direction; it could
ultimately ease rather than exacerbate the burden-sharing
debate. Finally, as Harry Cohen--member of the British House
of Commons--points out in his draft report on the Costs of
NATO Enlargement, properly administered alliances generally
are cost effective insofar as they provide greater security
at lower cost than purely national defence. This fiscal
reality does not show up in national accounting sheets, but
it will continue to hold true. We parliamentarians must help
ensure that the burden-sharing debate reflects this central
reality. If national leaders fail to do this, this vital
Alliance could come under unwelcome political stress.
The growing gap in the defence-industrial bases of Europe
and the United States represents another economic issue with
direct consequences for NATO. Here the problems may be more
serious. Norbert Wieczorek's report to--the Economic
Committee of the North Atlantic Assembly--on changing defence
markets discussed the important consolidation of U.S. defence
industries. Profound restructuring and rapid integration of
information technology have resulted in a growing U.S.
competitive edge over European defence firms, which remain
more heavily regulated, smaller and higher cost producers.
This gap makes a genuine two-way street in defence trade
increasingly difficult and is adding yet another barrier to
transatlantic project teaming. The divergence is growing so
apparent that it could eventually have spill-over effects on
military tactics and the overall transatlantic relationship.
The recent Administration-EU Commission dispute over the
Boeing-McDonnell Douglas merger was indicative of this
issue's great sensitivity.
Until Europe creates a more unified market for defence
goods which fosters the creation of pan-European defence
firms, there will be few European firms to rival their
American counterparts in scale and scope. The result will be
higher procurement costs in Europe and perhaps even greater
protectionism which will further shorten the scope for
transatlantic defence industrial exchange and could lead to
trade tension. Transatlantic defence co-operation and trade
foster interoperability, reduce overall defence costs, and
ensure the existence of competitors which will help spark
innovation and cost reductions. Europe is moving too slowly
in consolidating the defence business, and unless the effort
is galvanized, the current gap may become wider by the next
century.
Internal market reforms in transition economies has also
become an issue directly related to NATO's future, insofar as
the introduction of liberal market structures is a
precondition for an invitation to join the Alliance. The
financial capacity of prospective states to underwrite force
modernization, retrain their officers and meet minimal
standards of interoperability represents another economic
consideration of considerable importance. These factors were
crucial to NATO's decision to invite Poland, Hungary, and the
Czech Republic to accession negotiations. The pace of reform
has certainly quickened in Romania and was one reason why its
candidacy was considered with a great deal of seriousness--
something which was not anticipated even two years ago.
Slovenia has already registered one of the more impressive
transitions to a market-based economy. As the region's
economies become more integrated with those of Western
Europe, whether or not they are formally invited to join the
EU, it seems likely that the economic preconditions for NATO
accession will be met by several other states over the next
ten years provided the reform path is not abandoned.
Accession is not without economic consequences, NATO, of
course, has no direct responsibility over transatlantic
economic management, but it certainly can provide a secure
foundation which business and investment need to flourish.
This is taken for granted among current members, but not by
aspiring members. Disappointed Romanian and Slovenian
officials lamented that their being left out of NATO would
penalize them economically. Those admitted, on the other
hand, might enjoy a comparative advantage in attracting
foreign investors who would be marginally more reassured by
the commitment of the West to the security of new members. It
should be recalled that such considerations can even have an
impact on interest rates, and thus all things being equal,
membership could thus reduce the cost of capital in new
member states. So much for the issues of direct consequence
to NATO.
The second category of economic issues that are likely to
affect the Alliance will not be specifically tied to NATO,
but will nevertheless be influential in shaping the overall
relationship between North America and Europe. It should go
without saying that the end of the Cold War has profoundly
altered the transatlantic relationship. The dramatic
reduction of military tension has perhaps loosened the
discipline that kept the Atlantic partners from allowing
trade, monetary or other economic disputes to weaken the
partnership. There are some signs that each side is now
turning away from the other despite real interests in not
doing so. The key question is whether or not mutual economic
dependencies as well as shared strategic interests are
sufficient to hold together the Alliance. I think they
should be, but we must recognize the potential for
difficulties in an Alliance no longer overwhelmingly bound
together by an overarching Soviet threat but rather united
by a more complex set of strategic, political and economic
ties.
A second consequence of the Cold War's passing is that
economic issues have become a more prominent force in the
overall transatlantic relationship. On the face of it, this
is a good thing; Europe and America broadly share a common
appreciation of the value of a liberal international economic
regime and are important trade and investment partners. One
writer recently described the relationship in terms of a
shared economic culture, writing that, ``When America and
Europe advocate free trade, they are less likely to talk past
each other than are America and Asia.'' Although economic
relations between the two continents have generated great
material prosperity, they have also long been a source of
generally healthy, if often fiercely contested, competition.
That rivalry is never as heated as it is when two conflicting
visions of the legitimate role of the state in economic
matters come into play. In recent years we have seen the
American officials claim that foreign policy imperatives give
it the right to exercise extraterritorial authority over non-
American firms. The European Commission did the same when it
claimed anti-trust review authority with regard to the
Boeing-McDonnell Douglas merger.
Since the end of the Cold War, the frequency and
seriousness of transatlantic economic disputes seems to be
growing. This is hardly a welcome harbinger for future
transatlantic relations; but it could just as well reflect
difficulties associated with transition to a new
international security and economic order.
The shape that Europe takes is another critical factor in
the transatlantic relationship. We can now presume that EMU
will go ahead, and that by January 1999, the Euro and a
European Central Bank will be in place. This will constitute
the greatest change to the international monetary system
since the collapse of Bretton Woods. The accompanying
commitment to price stability will bring down interest rates
in Europe and may provide an additional impetus to loosen
overly burdensome labour market regulation which has been the
primary source of high unemployment on the continent. This
coupled with the elimination of burdensome transaction costs
will more deeply unify European money and commercial markets
and will prove a dynamic boost to European growth. Moreover,
the Euro will ultimately rival the dollar internationally. It
is possible however that the absence of fluctuation in intra-
European rates could result in even greater dollar-Euro rates
fluctuation with negative effects on transatlantic trade and
investment. Thus in monetary matters, Europe and the United
States will have to consult even more deeply than they do
today. In this respect, perhaps the creation of a Euro could
be a force for greater transatlantic integration. This, of
course, hinges on a number of additional economic and
political factors.
The likely accession of new members to Europe in the early
years of the next century could have different effects on
transatlantic relationship. The Americans will broadly
welcome EU enlargement as a critical contribution to regional
stabilization and prosperity and thus a natural complement to
NATO enlargement. Moreover, EU enlargement is likely to
compel Europe finally to revamp those institutions and
programs which many officials acknowledge have grown outdated
or unwieldy. Agricultural reform here may be the key
question, and insofar as it leads to greater market access
for American producers and general liberalization of
agriculture markets, it could have a very positive impact on
the transatlantic relationship.
On the other hand, a geographically larger, more diverse
Europe implies perhaps a more inward-looking EU, at least
over the medium term. The process of consolidation is likely
to create certain tension with the United States,
particularly if American officials and the US Congress gather
the impression that the EU is artificially diverting trade
away
[[Page E2027]]
from the US. The Americans will thus be watching both
monetary integration and EU enlargement with a keen eye and
will not hesitate to express their views on matters that
effect its interests--just as Europeans will
scrutinize American economic policies including its
sanctions initiatives designed to tie security and trade
issues and which are likely to directly impinge directly
on European commercial and monetary interests.
Another problem is that globalization itself has partly
eclipsed the transatlantic economic relationship, even if
globalization itself can be seen as a natural and successful
consequence of the transatlantic partnership. The emerging
global economic order is increasingly characterized by the
unhindered trade of goods and services, the rapid diffusion
of technology, the ever greater mobility of financial capital
and the far more prominent role being played by private
financial institutions. In this new global economy, there
will be an ever greater premium attached to stringent
monetary and fiscal management. This is increasingly leading
to macro-economic convergence. Yet, our societies are
naturally not always willing to cede everything to economic
logic. And it is for this reason that states will remain
critical actors in the world economy.
Globalization is a force affecting all our countries, and I
would argue that it is pushing North America and Europe in
the same general direction but at varying speeds. This could
potentially lead to further drift in the relationship. In the
United States, key sectors have been deregulated, while
strategic corporate mergers have created a number of large
coherent industrial and service companies poised to flourish
in the international economy. Responding to new challengers
like Japan, American civilian firms in recent years have
restructured their operations, introduced new organizational
principles and slashed work forces and production costs.
American firms like Microsoft and Intel have established
nearly hegemonic positions in new computing industries.
California's Silicon Valley rides on the crest of the
information revolution and is reaping huge profits as a
result. American industry has very rapidly incorporated the
computer into the workplace and this seems to have
contributed to America's current economic boom. Average GNP
growth in the United States over the last seven years is
2.5%, the current unemployment rate stands at only 4.8%, and
inflation has fallen to 2.8%, while a rocketing stock market
index continues to astonish observers.\1\ Some economists
including Fed Chairman Alan Greenspan have hinted that a kind
of sea change has transpired in the United States that has
permanently changed the inflation-growth-unemployment
relationship.
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\1\ The Economist, June 21st, 1997: p. 12.
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Europe's firms have begun to respond to global pressure
through restructuring and consolidation although markets
there are generally more regulated and tax rates remain
higher. Moreover, with a GNP the size of America's, in 1994
Europe produced only a fifth as much software. It has only 7
percent of the export market for computers and office
equipment. This suggests that despite unambiguous signs of an
economic recovery, Europe needs to make great advances in the
industries that are likely to dominate world markets in the
future. If globalization is seen in Europe as rewarding only
those industries in which Europe feels less competitive, the
result could be a more inward-looking Europe, resistant to
deregulation and determined to defend a quality of life that
cannot be sustained without undertaking important changes. An
inward-looking Europe's relationship with the United States
would be tense. The United States clearly needs Europe as a
partner to advance the liberal, free trading vision.
Therefore, a significant fall-out would gravely weaken
America's capacity to promote greater international
liberalization and integration.
At the Denver summit earlier this year, the contrast
between the American and European economic cultures were
starkly on parade. While President Bill Clinton extolled
American achievements, somewhat offended European leaders and
numerous writers subtly pointed to what many see as the down
sides of the US model, including the wider income gap in the
United States and the tragic state of American inner cities.
Again this is indicative of how domestic political economies
are increasingly becoming a subject of international
discussion. This is partly because distinctions between
domestic and international economic issues are artificial and
increasingly recognized as such. How states organize their
domestic political economy will have important effects on
their relations with other states. The New Transatlantic
Agenda, however, suggests that this phenomenon need not be
viewed with trepidation. It can have a mutually
advantageous impact provided that our countries' leaders
manage it properly. That will not be easy as the Helms-
Burton dispute revealed.
Finally it is often assumed that the greatest investment
opportunities lie in developing or transition economies. But
in the coming decade, growth opportunities will be great in
much of the OECD as well, due to de-regulation, restructuring
trade in services and the emergence of new information
industries like those related to the internet. The most
developed countries are undergoing an industrial revolution
which will create countless new opportunities for trade and
investment between Europe and the United States. We are
already seeing this revolution in the development of
transatlantic telecommunications and airline alliances. The
intricate interweaving of corporate interests could have the
effect of bringing Europe and the United States into an even
closer relationship partly by making it more difficult for
states to claim companies as their own and to act on that
basis.
The Russian economy's evolution will also shape the
transatlantic agenda. Were the Russian economy to spiral
downward, the resultant instability would pose a serious set
of problems to Central and Eastern European states--ranging
from new refugee pressures to even greater mafia activity.
The proliferation of the know-how and material necessary to
construct weapons of mass destruction is not unrelated to the
health of the Russian economy as well as the Russian state's
capacity to control the export of weaponry and material and
to keep scientists and engineers gainfully employed. The
Allies will have to encourage further liberal market reform
and commercial integration with the West and assist Russian
leaders in controlling armaments exports insofar as each of
these is possible. Responsibility ultimately lies with the
Russians themselves, and the current government appears
committed to reform. But strong political and social
resistance to reform will not fade away and mafia activities
seem to be growing in scale and scope. The most likely
scenario for Russia is fitful reform with uneven results. The
West must therefore be prepared both to extend a hand to its
Russian partners while preparing for a relationship that
will not always be easy.
Russia will continue to be a key player in energy markets.
For example we can anticipate a rivalry in the Caspian Sea
for influence and access to the huge potential oil and gas
reserves of the Caspian region. Energy issues have long been
a source of division within the Alliance (Total's recent
investment plans on Iran being the latest example), and
forging a united Western approach to the Caspian region may
prove enormously difficult given the different kind of
interests involved. The Caspian region will emerge as one of
the crucial out-of-area considerations shaping the strategic
calculations of the NATO partners as well as the Russians,
and it may well divide more than unite North America, Europe
and Russia.
Let me conclude with a brief remark about my own country.
Like Europe, America confronts long-term structural problems
that will continue to absorb the energy of legislators and
government officials. Some of these problems, like the
growing income gap, may have been exacerbated by
globalization, while others, like educational weaknesses,
compromise America's long-term prospects in that economy.
Finding solutions to such problems lie at the core of
contemporary American politics. Despite these problems, there
is a growing perception that globalization has proven
beneficial to most Americans. President Clinton, for example,
will probably be granted authority to negotiate a new round
of free trade pacts despite resistance from his own party's
left wing. The public and its representatives have come to
recognize the value of the world economy. Many new members of
the U.S. Congress arrive with little international
experience, but economic globalization and America's central
role in that process means they cannot or at least should not
ignore developments beyond its borders. The Senate NATO
enlargement ratification debate will again focus attention on
the profound ties between the U.S. and Europe.
One of the hallmarks of democracy is that when push comes
to shove, rationality generally prevails. The reasons for
maintaining close transatlantic economic co-operation far
outweigh the inconveniences and petty disputes. Both Europe
and America are subject to global economic pressures and its
leaders and companies are responding in ways consistent with
their distinct political and economic cultures and
traditions. The great challenge lies in accommodating these
differences in order to revivify a partnership of politically
stable and economically vital nations that together will help
steer the world economy into the next century.
____________________