Ukraine Deserves a Better Trade Pact
The original purpose of tomorrow's U.S.-European Union Summit was to move forward on the Transatlantic Trade and Investment Partnership. Instead, policy on Russia and Ukraine will be the main focus. Yet the connection between those two subjects is closer than you might think: Strengthening the economic alliance between the U.S. and Europe should be part of the West's response to Russian President Vladimir Putin's power play.
A closer economic partnership between the U.S. and Europe is desirable in its own right -- but it can also serve to isolate Russia, especially if TTIP, once done, is expanded to cover Ukraine and other important partners. The strategic use of soft power can be a powerful weapon: Russia spent 18 years trying to join the World Trade Organization, and Putin's approval of the final deal showed the high priority he placed on Russia's membership in the global economic community.
TTIP began as an effort to strengthen economic ties that are already close. The U.S. and Europe have the largest bilateral trade and investment relationship in the world, with $4 trillion of trade and investment supporting more than 13 million jobs on both sides of the Atlantic. But it makes sense to deepen this integration even further. An ambitious new U.S.-EU trade agreement on tariffs, regulatory collaboration and heightened economic cooperation would create billions of dollars in new exports and thousands of extra jobs.
In addition, though, TTIP could be broadened beyond the U.S. and EU -- just as the Trans-Pacific Partnership that the U.S. is negotiating with 11 other partners is open to other Asia-Pacific Economic Cooperation countries that can meet the deal's requirements. TTIP could draw on membership of the Organization for Security and Cooperation in Europe, the institution now sending monitors into Ukraine. Turkey is in that organization, has a customs union with Europe and close ties to the U.S., and has already asked to join TTIP. For countries in the regional security organization such as Ukraine, Georgia and Moldova, the path to TTIP is likely to be faster than the road to the North Atlantic Treaty Organization or the EU.
Expanding TTIP will take time, and it won't deliver much in the way of economic benefit to Ukraine until its economy gains a more solid footing. But announcing the intention to enlarge TTIP would be a blow to Putin in itself, and would serve the immediate goal of responding more powerfully to his move on Crimea. It would also hasten conclusion of the agreement, as was called for at the outset.
There are other things the U.S. and Europe should do as well. Don't underestimate the power of political isolation. Russia's leaders took pride in joining the Group of Eight (a gesture extended by U.S. President Bill Clinton to Russian President Boris Yeltsin) and saw Russia as a serious candidate for membership in the Organization for Economic Cooperation and Development, a club of advanced-economy countries. In public, Putin will shrug off measures such as suspension from the G-8, but they signal loss of prestige -- and that hurts.
Economic sanctions hurt, too. President Barack Obama was wise to follow through on his threat to toughen his initial executive order, extending it to financial services and other vital sectors. Europe ought to do the same, and aim to reach a broader circle of Putin's lieutenants and oligarchs.
Europe and the U.S. should also do all they can to help Ukraine deal with disruptions to its trade with Russia and to advance its transition to a functioning market economy. This starts with immediate relief from the International Monetary Fund. Without delay, the U.S. Congress should support a short-term stabilization package for Ukraine. Europe should continue to take the lead in designing a longer-term program of economic and financial assistance.
Finally, the U.S. and Europe need a common energy security policy. A first useful step would be to reinvigorate the U.S.-EU Energy Council. Obama and EU leaders will also have to rethink the balance between securing greater energy independence and protecting the environment. Energy exports are part of the TTIP discussions. Further liberalization should be a priority: Under U.S. law it is easier to export natural gas to partners with which the U.S. has a trade agreement.
TTIP has the potential to have an impact even greater than first envisioned. Obama and his counterparts should make clear to their negotiating teams that they want concrete and quick progress. They should set firm deadlines. And they should explain to the public why the deal matters, not just for the U.S. and the EU but also, after Crimea, for countries in Russia's shadow.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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--Editor: Clive Crook
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