The FP Memo

How to Fix Europe's Image Problem

The European Union must showcase its democracy-building skills while avoiding moral grandstanding and its own version of unilateralism.

MEMORANDUM

TO: José Manuel Barroso,
European Commission President Javier Solana, EU Foreign Policy Chief

FROM: Andrew Moravcsik and Kalypso Nicolaidis

RE: Bridging the Atlantic

The recent American charm offensive in Europe -- capped by President George W. Bush's visit in February and the subsequent agreement on a joint strategy for Iran -- shows that there is some hope for warmer trans-Atlantic ties. Perhaps most important, the president conceded that the European Union (EU) is a major global partner by treating it as equal to NATO. Europeans still believe, however, that the United States could be more respectful and sophisticated in its relations with the EU. Certainly, the Bush administration must learn to listen as well as lead. But can you entirely fault the Americans? Constant electioneering by 25 national leaders speaking 20 languages, splits between "old" and "new" Europeans, and a constitution in limbo often make it hard for Americans to discern a clear European message. You have correctly proclaimed your commitment to raising Europe's foreign-policy profile during the next five-year term of the European Commission. Changing attitudes in Washington will be an essential part of that task.

Europe is widely viewed in the United States as impotent, obstructionist, and -- simultaneously -- utopian and cynical. Americans instinctively understand military alliances and simple free trade agreements, such as NATO and NAFTA. They have no experience with Europe's complex governance system. Americans pressure the EU to let Turkey into the club, but they would be astonished if Mexican President Vicente Fox asked the United States to "share" Supreme Court justices, trade negotiators, and agricultural subsidies the way Europeans do.

The coherence of EU foreign policy is likely to improve as the new constitution is implemented, in late 2006 with a bit of luck. But in the meantime, what does Europe stand for? You must correct the distorted image of Europe by keeping your foreign policy pragmatic, broadening your strategic agenda, and connecting Europe's experience to the larger push for democratic change.

Showcase Europe's "Civilian" Power

In Washington, Europeans are often portrayed as free riders on U.S. geopolitical might, unwilling to spend on credible defense capabilities. Without a common EU defense policy, the metaphor goes, the United States will do the cooking and Europe must clean the dishes.

It is past time for Brussels to retire the rhetoric of powerlessness. The first step in a more robust European strategy is to highlight Europe's financial and political commitment to deploying "civilian power." Europeans will not soon match the military capabilities the United States displayed in Kosovo and Iraq -- and it is unclear what difference it would make if they could. A far more effective approach would be to stress what Europe is already doing. The real lesson of the past four years is that most Western progress in promoting security can be traced to less flashy strategies that are natural tasks for the EU, with its collective, incremental style of governance. European power is equal to or stronger than that of the United States in almost all forms, save for the deployment of military might. And this power is almost always exercised to pursue goals shared by the United States.

Enlargement. In a decade or two, the EU will likely encompass 600 million people from the Arctic Circle to Turkey's border with Iraq. Since the end of the Cold War, authoritarian, intolerant, and corrupt governments have lost elections to democratic, market-oriented coalitions held together by the promise of EU membership. In the face of public skepticism, EU leaders courageously decided to negotiate accession with Turkey. At least in its own neighborhood, Europe is the leading promoter of democracy.

Trade. For those who cannot join the EU, close trade relations often help spread prosperity, democracy, and reform. Association agreements have been made with Russia, much of the former Soviet Union, Israel, and many Arab states in the Middle East and North Africa -- all of which trade more with Europe than with the United States. European trade with China recently surpassed that of the United States.

Aid. Whether in the form of humanitarian assistance, technical expertise, or support for nation building, foreign aid reduces human suffering and bolsters peaceful development. Here, too, Europe is the civilian superpower, dispensing 70 percent of all civilian foreign aid and dispersing it more widely than the United States. In assisting democracy building in the Middle East, excepting Iraq, the EU dispenses 15 times more annual aid than the United States.

Peacekeeping. European nations now deploy more than 100,000 troops abroad, many of them in defense of U.S. commitments, in places such as Afghanistan, Bosnia, Haiti, Kosovo, and Sierra Leone. Current and prospective EU members contribute 10 times as many soldiers to U.N. peacekeeping and policing operations as does the United States. European defense cooperation is not aimed at countering U.S. hegemony but at mustering more troops for these humanitarian and peacekeeping operations.

You will find a receptive audience in the United States if you emphasize the effectiveness of these contributions to Western security. Americans on the right and the left have learned from Iraq that winning the peace is harder than winning the war. The United States sometimes has difficulty addressing the root causes of terror. Show Americans that bolstering Western "civilian power" through the EU is very much in their self-interest. Trumpet these European strengths.

Stay Pragmatic

Moralism is just as common, and no more attractive, among responsible Europeans as it is among U.S. neoconservatives. During President Bush's visit in February, Europeans unhelpfully touted the EU as the "moral power" -- in contrast, presumably, to the amoral United States. This is hardly constructive.

Stop Focusing on Wedge Issues. Complaints over symbolically salient but secondary issues such as the International Criminal Court, the land mines convention, capital punishment, and U.N. resolutions on the Middle East do little good. The U.S. positions on these issues are unlikely to change. European heckling is counterproductive and invites some damning responses. What is principled about pandering to Russian President Vladimir Putin, especially considering the carnage in Chechnya? How can Europe justify the depression in agricultural prices caused by the Common Agricultural Policy, which perpetuates developing-country poverty? And what does the inability to offer unanimous support for intervention in Sudan say about Europe's moral superiority?

Help Rebuild Iraq. Today, the EU faces new opportunities to assist in Iraq's reconstruction, through policing, training, and legal reform. Unfortunately, certain member states remain reluctant to make success for the United States more likely. Persuade them that using some of the EU's reconciliation and mediation expertise in Iraq is good for both European interests in the Middle East and its relationship with the United States.

Make a Miracle of Gaza. The future of broader Middle East peace rests largely on an effective transition to a post-Yasir Arafat Palestinian Authority in Gaza, including the incorporation of such groups as Hamas into the political process. Ensuring that Gaza's new autonomy does not lead to isolation will require carefully choreographed technical and financial aid, the safe opening of ports and borders for exchange, and tangible signs that there is more progress to come. The EU has the means and credibility to facilitate this transition, balance the perception in the region of a U.S. bias toward Israel, and increase the likelihood of a settlement.

Promote Trans-Atlantic Homeland Security. Europe is indispensable in waging the war on terrorism. The EU, not NATO, is the institution that can best secure container shipping, a likely instrument of terrorism in Europe and the United States. The EU already oversees screening airline passengers, securing loose nuclear materials, coordinating police activities, and fostering cooperation on European intelligence -- which has already foiled a number of plots directed at U.S. assets. A more prominent and public EU role would counter the false impression that Europe is not pulling its weight.

Set the Agenda

Operating in its own sphere, Europe has shown the ability to set the agenda through progressive enlargement and agreement with its "wider neighborhood." Beyond that, however, Europe is too often passive and reactive. As former colonial powers, Europeans are pessimistic about what can be achieved in conflict zones such as the Middle East. You can help European politicians and publics deal with the continent's psychological deficit. Working alongside the United States, the EU can question the assumptions of a bygone era and help redefine the global agenda. For this, Europe must extend the strategic agenda it pursues in its backyard -- and is currently pursuing in Iran -- to the rest of the globe.

Expand the Euro-Mediterranean Partnership. This program, launched in November 1995, commits Europe to engaging in a security dialogue and to establishing an eventual free trade area in the Middle East. Through the program, Europe has provided more than $10 billion in development aid and loans to the region. The partnership dwarfs the United States' Greater Middle East Initiative in scope and financial commitment. Yet the EU has shied away from implementing a more ambitious strategic vision. You should use the partnership's 10th anniversary to give it a higher profile.

Preempt the Crisis over Chinese Arms. The EU initially signaled its intent to unilaterally lift the arms embargo on China, suggesting that Europe did not appreciate American security commitments in the region. Fortunately, that position appears to be shifting. Europe should now implement a gradual and negotiated change to the arms embargo, in close consultation with the United States (which is particularly concerned about "dual-use" technologies) and conditioned on Chinese human rights commitments, such as signing the U.N. Covenant on Civil and Political Rights.

Reform International Law. You claim to be serious about international law. If that is so, the EU must implement and expand the recent proposals by a U.N. panel of experts, especially its recommendation on revising the criteria for using force, strengthening the nonproliferation regime, and entrenching the right and duty to intervene, a norm too important to be left hostage to distrust of American motives. This battle may be lonely, but Europe is well positioned to explain and champion the idea of "responsible sovereignty."

Liberty, with a European Twist

If Europe can accomplish what has been laid out here, it will be able to more effectively transmit the European version of liberty and democracy. Too often, critics of Europe in the United States get away with portraying Europe as unprincipled and without vision. In fact, Europe's experience is a critical lesson in how democracy can exist in a world requiring governance beyond the nation-state. Remind Americans that Europe, too, is on the side of liberty.

The European experience demonstrates that a multilateral institution can be powerful and authoritative without trampling on the rights and liberties of its member states and their citizens. The EU's limited government, its checks and balances, minimal centralized fiscal control, broad democratic input, and efficient and decentralized administration are very much like the U.S. Constitution at its best. While acknowledging its flaws, Europe should emphasize that its form of cooperation can create unity in diversity and serve as a laboratory for the rest of the world.

Reacting to Bush's visit, you said that "freedom is a European concept." It is time to elaborate. Why not explain what liberté, égalité, fraternité means today and how Europe's concept of liberty differs from, but also complements, that of the United States? In particular, Europeans believe that political rights are not sufficient to foster meaningful democratic change and must be supplemented with social rights, cultural freedom, and collective solidarity. This concept of positive as well as negative liberties -- this "European dream" -- is one that appeals to the world as much as the libertarian conception that reigns in the United States. Pragmatically advancing this vision is something Europeans owe themselves, and the world.

The FP Memo

The FP Memo: Attention, Wal-Mart Executives

America's leading company must expand its operations abroad, help smooth relations with China, and convince skeptics that free trade creates jobs.

MEMORANDUM
TO: H. Lee Scott Jr.
President and CEO
Wal-Mart
FROM: Robert E. Litan
RE: Retail Diplomacy

You grew up in the 1950s, when Charlie Wilson, once head of General Motors and later secretary of defense, said "What's good for General Motors is good for the country." Today, you are privileged to run a company that is as important to the U.S. economy -- in terms of sales and employees -- as GM was then.

But Wal-Mart is not only one of America's largest companies, it is one of the world's largest. You've come a long way to reach this point. In founding Wal-Mart, Sam Walton proudly advertised that the company would sell goods made in the United States. Now you sell products from all over the world and have operations in almost a dozen foreign countries, including Britain, China, and Japan, with plans to expand into Hungary, India, Poland, and Russia. You have become the quintessential multinational corporation, and with an incredible $285 billion in sales last year, your revenues exceed the gross domestic product of Austria, Greece, and Switzerland. All of which raises the question: What is Wal-Mart's foreign policy?

Conquer Foreign Markets: Like all public companies, you must continue to increase your revenues, and more important, your earnings. Otherwise, your stock price will stagnate and eventually decline -- to the detriment of the hundreds of thousands who own shares in the company. So far, most of your growth has come by adding stores in the United States, at the impressive rate of roughly 300 a year. You claim to have plenty of growth opportunities left in the United States by expanding into underserved regions and by adding stores near the ones you already have. But anti-Wal-Mart activists and tightening profit margins will probably hobble your growth at home.

Wal-Mart may be the proud creation of "red state" America, but its future is overseas. Your international operations already account for about 20 percent of overall sales, but with less than 3 percent of the global retail sales market, you have plenty of room to grow. Last year, you added 232 stores -- almost as many as were opened in the United States -- in such countries as Brazil, Britain, Canada, China, Mexico, and South Korea. Your recent tour of Europe to scout out competitors is a sign that you understand that Wal-Mart must become an even more global operation.

Advocate Free Trade: Your business hinges on saving consumers money by taking advantage of other countries' efficiencies. Consumers simply aren't willing to pay more for "made in America." Your critics conveniently ignore this fact -- and the billions of dollars that your low prices put into the pockets of lower- and middle-income Americans. Don't let the skeptics deter you from publicly touting the benefits of free trade. On your company's Web site, for example, you defend against the false charge that you buy 70 percent of your goods from China by pointing to the billions you buy from American suppliers. But you miss the chance to remind readers that cheap goods from China save them money, too. There couldn't be a better corporate spokesperson for telling Americans about the price savings they can get from free trade than Wal-Mart.

Extracting concessions from foreign governments will be critical, as well. You urgently need them to lift their restrictions on "big-box" retailers such as yourself. These barriers, often implemented through zoning laws, keep your trademark megastores out of important markets. Getting foreign countries to clear away regulatory obstacles, however, will require some hard bargaining. You therefore have a direct interest in jump-starting stalled multilateral trade talks. And you have influence on both sides of the divide. Because you are already heavily involved in several emerging markets -- including Argentina, Brazil, China, and Mexico -- you may be in a position to help persuade these governments to reach common ground with the United States and other rich countries at the Hong Kong trade summit in December. Meanwhile, tell U.S. Trade Representative Rob Portman that it's worth making concessions, such as reducing agricultural subsidies, that are a waste of U.S. taxpayers' money in any case. Opening Europe and Japan to efficient American retailers and other service providers will help consumers there, but it will also create jobs in the United States. Start making the case.

Build a Safety Net at Home: Unfortunately, support for liberal trade policies in the United States is crumbling fast. New concerns about "offshoring" have seriously eroded public support for trade. As you know, not everyone wins from freer trade: Some lose their jobs, though far fewer than popularly believed. Workers in import-competing industries may keep their jobs, but they often must accept stagnant wages, or even wage cuts. Wal-Mart can use its influence to help soften the blows of the free market -- and shore up political support for free trade.

It is long past time, for example, that the U.S. government ease workers' legitimate anxieties over job losses by strengthening the safety net. Specifically, you should urge federal lawmakers to provide "wage insurance" that, for a limited time, would replace some of the wage cuts imposed on displaced workers. Congress adopted a very narrow and complicated form of wage insurance in 2002 that was limited to workers older than 50 who could prove they lost their jobs due to trade. But workers don't care whether the source of their job loss is trade or, as is more often the case, continuing advances in technology (think voice mail and word processing replacing secretaries) or shifts in consumer tastes (car buyers who want foreign brands instead of Ford).

For a few billion dollars a year -- which a small increase in the federal unemployment insurance premium could easily fund -- the U.S. government can give wage insurance to all permanently displaced workers. Wal-Mart has clout on Capitol Hill and in the White House. Use it to help make effective employment insurance a reality. If yours and other big companies who support freer trade won't do this, don't be surprised if the trade agreements you want never see the light of day.

Convince the World That Wal-Mart Means Jobs: Europe and Japan are full of small shopkeepers, and they are deathly afraid of you. In Britain, for example, activist groups are working hard to restrict megastores that threaten small businesses. If you don't successfully address their concerns, you may find that the doors to these lucrative markets remain barred. One strategy is to appeal directly to the pocketbooks of Japanese and European consumers and let them pressure their governments to relax the restrictions that are keeping you out. Don't let the activists dominate the debate; there are plenty of quiet consumers who should be on your side. And whenever possible, challenge the activists on their own turf. You might, for example, tout Wal-Mart's new "green" stores -- complete with solar panels, windmills, and water-saving devices -- to environmentally conscious Europeans.

You also need to emphasize that Wal-Mart helps create new firms -- local suppliers -- even as it may threaten smaller local businesses. As you expand into other countries, you'll need more efficient and honest domestic suppliers, who understand local tastes and know their customers. To encourage their formation and growth, you need to build local support for entrepreneur-friendly policies: less red tape when applying for business licenses, easy registration of property titles (so entrepreneurs have legally recognized collateral), and bankruptcy laws that don't condemn those whose first or second forays into business end in failure. Think about running public seminars on entrepreneurship out of foreign stores. And help understaffed U.S. embassies and aid missions know where corruption and inefficiency are still rife. The United States should give substantial weight to these factors in deciding how to distribute funds from the Millennium Challenge Account. Wal-Mart, with its growing understanding of foreign supplier networks, can be the government's eyes and ears.

Lie Low on China: Wal-Mart has a special relationship with China. In 2004, your company accounted for almost 10 percent of the $197 billion in goods the United States imported from the mainland. So Wal-Mart has a keen interest in what happens in the increasingly turbulent U.S.-China relationship.

For the last decade, the United States and China have had an implicit bargain: China wants to keep its export prices low so it pegs the yuan to the dollar, and the United States needs China to use its export revenue to buy Treasury bonds and finance the huge U.S. federal deficit. The Bush administration, pressed by many on Capitol Hill, pounded the Chinese to revalue or "float" their currency. In July, China finally budged -- but just an inch, allowing its exchange rate to move up or down by about 2 percent against a basket of foreign currencies.

China's move -- small as it is -- probably will ease the China-bashing for a while. Truth be told, your interests are probably closer to Beijing's than Washington's when it comes to revaluing the yuan. You want low prices on the goods you buy from China, so a more significant revaluation of China's currency may hurt your bottom line. So, in the meantime, lie low. But it wouldn't hurt for you to diversify your supplier base a bit so that when the yuan does rise further, as it inevitably will, you'll be able to quickly turn to other suppliers who are almost as competitive as the Chinese are now.

Franchise for Peace: Theorists have long speculated that commerce ties countries together and makes conflict less likely. The theory has its limitations, to be sure, but it's also powerful. The more countries where you have stores, and the more foreign countries you buy from, the less interest they'll have in fighting.

Here's an idea: Why not make a concerted effort to expand your stores in the Arab countries of the Middle East, a region where you still lack a presence? You might worry about being a target for foreign terrorists, but you can reduce those chances by having nationals run, and perhaps jointly own, those stores. Or maybe the answer is finding foreign partners -- rather than opening new Wal-Marts per se -- that will follow the same business model but with a local feel. You already do that in Brazil, China, and Mexico. What better way to export your values -- everyday low prices -- than to build your stores overseas?

Long-term U.S. interests and the interests of Wal-Mart have a lot in common. Peace, free trade, and globalization are good for both the country and its premier company. But countries don't always follow long-term interests, and it appears that a protectionist wave may be building in the United States that could damage free trade generally and your lucrative relationship with China in particular. Wal-Mart should throw its weight against that trend. Your company may no longer be about "buying American," but that doesn't mean it can't be good for America.