[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:


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 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.
---------------------------------------------------------------------------
     \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.

     

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