A more geoeconomic-minded strategy is needed. This includes working closely with allies, toughening the U.S. posture on backfilling economic voids created by sanctions, reducing Europe’s dependence on Russian oil and gas, increasing economic support for Russia’s neighbors in former Soviet space (including ramping up support for Western private investment as an alternative to Russian and Chinese state-led investment, an alternative that many Central Asian and Eastern European leaders are desperately seeking precisely for this reason), and punishing Moscow’s neoimperial behavior.31 The market has heaped its share of opprobrium on Moscow for the country’s aggressive behavior, certainly helped along by threat of U.S. and EU sanctions and the steep drop in oil prices that began in mid-2014.32 But beyond allowing the Darwinian logic of global markets to impart its own helpful lessons, there remains plenty to be said for affirmative state responses to state provocations. Working with the EU to initiate a new standing policy of jointly policing and punishing acts of geoeconomic coercion and intimidation in Russia’s “near abroad,” in whatever form, would not only help habituate the Europeans into swifter actions but also send stronger signals of U.S.-EU resolve to Moscow and to other countries that may be looking to visit similar tactics on their regions.
POLICY PRESCRIPTION 12
Convert the energy revolution into lasting geopolitical gains.
The strategic premium the United States can gain from the unconventional energy boom is just as significant as the improvements seen in U.S. energy production.33 But the geopolitical benefits to America cannot be realized if the production of U.S. unconventional energy resources is not given the priority it deserves. As Chapter 8 underscored, energy as a geoeconomic tool has massive potential, and Russia’s continued insistence on using energy flows in pursuit of geopolitical objectives may have galvanized the beginning of a bipartisan U.S. political consensus supporting its use.
The United States should begin by expediting its approval process for LNG projects, which currently is unnecessarily laborious and expensive. The approvals system can and should be reshaped by, for instance, eliminating the need to review projects that involve shipping to countries with which the United States has free trade agreements.
With our allies, the United States should further the interconnectedness, productivity, and continuity of global gas markets.34 Indeed, the unconventional energy revolution should become a pillar for core U.S. relationships with America’s European and Asian allies. Closer to home, some administration policies—export bans in particular—have unintended consequences for both Canada and Mexico. Lifting these bans and approving the necessary infrastructure to link energy networks makes sense to ensure that our neighbors are able to enjoy the geopolitical benefits of the shale boom.
Long-term strategic decisions in the post-OPEC order also necessitate a reconceptualization of the Strategic Petroleum Reserve and management of the International Energy Agency’s strategic reserves system. Given that energy price volatility can be as detrimental to economic growth as steady high prices, U.S. national security officials—in close collaboration with policy makers in the Departments of Energy, Treasury, and State—should consider how the existing Strategic Petroleum Reserve might be revamped to play an active balancing role should other countries become unwilling or unable to do so in the future. Similarly, a post-OPEC world will see increasing instability among regional powers. Russia, Nigeria, Venezuela, Iran, and perhaps even Saudi Arabia could be facing tough times if the emergence of shale energy production continues to put downward pressure on energy prices. The United States should actively begin to look for ways to help friendly nations deal with potential fallout as well as employing other geoeconomic instruments where appropriate in handling rogue regimes.
In addition, the United States should include energy as a key component of TTIP and should consider forging a Pacific Energy Zone designed to link North American energy supplies with customers in Asia. The United States should include an energy chapter within TTIP with the overarching aim of reducing Europe’s energy dependence on Russia. In addition, the chapter should include a fast-track dispute settlement process that, even beyond its immediate function in resolving contract disagreements, might also serve as a model for similar efforts elsewhere.
The United States should also lead in the creation of a Pacific Energy Zone that would include North America (the United States, Canada, and Mexico), Japan, Korea, and perhaps China if its external policies permit. The goal would be to create a comprehensive energy framework for the region that, by bringing North American supplies to Asian markets, alleviates supply insecurities, sets norms, and begins to close the disparities in gas prices across the region. Such a plan could help to stabilize relations between the United States and China. It could defuse tensions between China and its neighbors—many of which begin with and escalate thanks to the actions of state-owned energy companies—while also providing the United States with a more direct foothold in preempting economic coercion. It would help answer the geopolitical influence of the thirty-year, multibillion-dollar gas deal signed in 2014 to supply Russian gas to China.
POLICY PRESCRIPTION 13
Meet the test of climate change.
As former head of the U.S. Pacific Command, Navy Admiral Samuel J. Locklear III was America’s top military officer charged with managing hostile actions by North Korea, tensions between China and Japan, and a spike in computer attacks traced to China. And when asked what he regarded as the largest long-term security threat facing the United States in the Pacific region, his answer was climate change. Like many other issues in the geoeconomic domain, solving the problem of climate change requires harmonizing domestic and foreign policies, an objective often not currently being accomplished.35
A more geoeconomic approach by the United States might mean including climate provisions in key trade agreements, for instance—such as a TPP Round 2 or a U.S.-EU agreement. To date, most of our environmental provisions in trade and investment agreements are more about ensuring a level playing field based on existing U.S. environmental standards than about incentivizing strategic progress on climate change as such. Apart from including climate provisions more explicitly within trade agreements, the United States should also explore whether there is value in a new form of bilateral agreement, akin to a scaled-down free trade agreement or bilateral investment treaty.
POLICY PRESCRIPTION 14
Blunt the threat of state-sponsored geoeconomic cyberattacks.
The costs of geoeconomic-minded cyberattacks fall disproportionately on U.S. (and to a lesser extent EU) firms, as the leading suppliers of R&D and tech-intensive goods and processes. For this same reason, however, it is little secret that the United States has more to lose in any tit-for-tat escalation in cyber hostilities. This has so far caused the United States to stop short of launching geoeconomic cyberattacks, even in cases where Washington officials have managed to trace back an attack to a state sponsor. The bar for provoking a U.S. government response—generally understood to be “massive economic harm or potential loss of life”—is purposely vague but still enables states to test the upper reaches of this standard.
The United States should create more intermediate costs to geoeconomic cyberattacks through two broad lines of effort. First, Washington should better empower private U.S. companies to engage in self-help, especially clarifying the rules surrounding defensive attacks (empowering companies to make their own decisions on whether to engage in so-called hackbacks, whereby companies hack into an attacker’s computer, either to ascertain the damage of the initial attack or to nullify its benefits to the attacker). Second, to help to mitigate the sort of whack-a-mole quality that remedies can often assume (where exclusion from one market is remedied simply by shifting to other markets), the United States should work diplomatically to enact coordinated cyber measures, beginning with enacting binding measures between the United States and the European Union in the context of TTIP, and then expanding toward other major econ
omies from there.
Cooperation on cyber-related theft of intellectual property and trade secrets in the TTIP context could take a number of different forms and levels of ambition. At the most basic level, there is utility in engaging with the EU within the context of these negotiations to explore potential responses to these problems (and forced technology transfer more broadly). Specific measures could include:
Possible uses of Section 301 of the Trade Act of 1974, authorizing countervailing duties (CVD) or CVD-like remedies for cyberattacks against private U.S. firms, jointly agreed and implemented with the EU, that would take effect in both U.S. and EU markets.
An update of Sec. 337 (which allows the United States to keep pirated goods out of U.S. markets) to include cyberattacks and harmonize it with an EU equivalent.
The creation of new cause(s) of action for U.S. and EU firms harmed by cyber espionage to bring suit against firms benefitting from the stolen data, allowing for variation in remedies from country to country.
Finally, the United States, the European Union, and others could enact coordinated measures targeting the ability to contract (or, more narrowly, the cost of financing) for foreign companies found to have committed cyber theft and/or to have otherwise benefitted from ill-gotten trade secrets or intellectual property. Much in the way that British crown companies in the 1700s drastically lowered their financing costs by binding themselves as subject to contracts, a set of rules targeting the ability of certain offending companies to contract could substantially increase their borrowing costs. Such restrictions could be limited to certain types of contracts and/or certain countries (e.g., those already on a designated watch list), and provisions could include a number of measures:
Targeting the cost of financing (e.g., for any deal where a U.S. or EU firm is found to have suffered a result of cyber-related economic espionage, contracts would not be enforceable in U.S. or EU courts, which would essentially increase borrowing costs for suspicious companies)
Coordinating whistleblower protections designed to incentivize firms to report cyber espionage
Anti-retaliation regime(s) that would seek to create coordinated penalties and sanctions, similar to countervailing duty remedies, for any state or state affiliate found to be retaliating against a U.S. or EU company for pursuing a claim for cyber-related theft of trade secrets or intellectual property
Finally, given the evidentiary difficulties, there may be value in shifting presumptions, burdens of proof, and evidentiary thresholds so that claims are easier to bring and to adjudicate, especially where state-backing or sponsorship is alleged. It might also be worth exploring the assignment of disproportionately large remedies, which would serve to alter the cost-benefit ratio of entering into retaliatory tactics.
POLICY PRESCRIPTION 15
Reinforce economic foundations for democracy and peace in the Middle East and North Africa.
Years after President Obama announced the creation of two new enterprise funds, one with Egypt and one with Tunisia, both funds have only just begun to cut checks. Years after the United States announced a new regional trade vision, no evidence of any progress exists. Instead, Washington has spent most of that time infighting and otherwise walking back the president’s initial commitment.
The United States should move immediately to articulate a mid- to long-term economic vision for the Middle East/North Africa region in order to strengthen U.S. power and influence there and to help stabilize these societies. For the past few years, as the Arab revolt has grown darker, the United States has by necessity focused on immediate stabilization, but with paltry results; a broader, longer-term vision can no longer wait, especially as the lack of such a vision is hampering our ability to manage the short-term challenges.
Such a strategy should center on revamping the MENA Incentive Fund (MENA-IF) and the MENA Trade and Investment Partnership (MENA-TIP), elevating them to presidential-level initiatives. For the MENA-IF, the goal should be a modified proposal that allows Congress greater oversight while still maintaining enough flexibility to keep pace with fast-moving developments in the region. MENA-TIP, meanwhile, should live up to the president’s initial concept: it should envisage real market access for those countries genuinely interested; it should weave together its existing bilateral free trade agreements, transforming the five separate agreements into a single, updated set of trade terms that apply between all participating states (a process known as cumulation); and it should incentivize participation through new, specially dedicated lines of economic assistance linked to incremental benchmarks.
With Egypt, the United States should rewrite the ground rules for assistance. The Egyptian government is ever hopeful that U.S. assistance flows will return with the same unflinching reliability that characterized U.S.-Egypt ties before the Arab Uprising, which would serve as a seal of approval for the country’s changing political environment. Ever since the fall of Mubarak, though, Egypt has been a story of halting progress, with more fits than starts. Even should there be democratic progress, U.S. assistance to Egypt will remain choked by interference from the country’s Ministry of International Cooperation—the Tammany Hall of Egypt.36 A better use of U.S. assistance to Egypt, then, would be a push to rewrite how aid is delivered, if possible removing the Ministry of International Cooperation from the process. At the same time, the United States should increase transparency and develop a publicly accountable process for how it dispenses its aid. Large amounts of democracy aid would be counterproductive in the current climate, but Washington could discreetly support civil society initiatives within Egypt. Such geoeconomic measures would make at least a minor contribution to the stability of Egypt, a crucial objective of U.S. Middle East policy.
With Tunisia, Washington should launch negotiations on a free trade agreement. Tunisia marks the one success, the one country transitioning to democracy in the wake of the events of January 2011. The Obama administration has committed nearly $700 million to support Tunisia’s transition, targeting elements of internal and external security, the promotion of democratic practices and good governance, and supporting sustainable economic growth.37 The leadership in Tunis is taking all the right steps—ratifying a progressive constitution, hitting reform benchmarks pursuant to its IMF deal, and conducting elections.38 Tunisian leaders are now looking to a free trade agreement with the United States as the government’s top priority. Beyond the diplomatic goodwill toward the United States it would engender, a free trade agreement would, as former chairman of the House Rules Committee David Dreier aptly noted, lock in structural reforms by creating “the resources necessary for sustainable democratic development and prosperity in Tunisia.”39 And because Tunisia is a country of just 11 million people, the economic impacts of such a deal for the United States, the sum total of winners and losers, would be negligible.
Next, the United States should establish a region-wide, high-profile, private-sector-led investment initiative. This would start from a familiar premise: channel willing capital, especially surplus capital in the Gulf states and Asia, toward infrastructure investments in Egypt, Jordan, Tunisia, Yemen, and other transitioning countries in the Middle East and North Africa. The investment mechanism would have three basic elements: (1) a multisovereign trust fund (overseen by third parties, such as the World Bank or United States) with windows to attract public and private investment, (2) a project development team and assistance secretariat to help countries propose projects and coordinate third-party financing (e.g., the European Bank for Reconstruction and Development, Islamic Infrastructure Financing Facility, World Bank, and others), and (3) a policy forum, composed of representatives of investor states, that would provide a venue to discuss regional employment and transition issues, and also help set policy objectives, country allocations, and various working requirements.40
This plan differs from the current crowded landscape in several ways—most notably in its largely private-sector dimension. Unlike the current G8 Deauville framework, this is Arab-c
entered and focuses on investment rather than sovereign loans; unlike the Arab Financing Facility for Infrastructure, capital would be channeled directly to the private sector; and perhaps most important, would-be investors from the Gulf Cooperation Council would have a meaningful seat at the table. If successful, the plan should help foster a much-needed indigenous leadership presence in these countries—providing at least a partial answer to the economic leadership deficit across the region.
The plan’s financial viability hinges on earning the support of GCC actors, who are prone to infighting and their own internal struggles for influence in Cairo. The primary role for the United States likely would be in publicly planting the initial call for such a plan and in offering quiet support for the plan to GCC officials—emphasizing the GCC’s common strategic interest in stabilizing these economies as the best prevention against Islamic radicalism. Washington should also underscore the benefits of the plan’s multiparty vehicle for the GCC (e.g., controlling shareholder status and return on investment).
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