Insight and Analysis

June 2019

By Daniel P. Erikson and Gabriella Ippolito

When the North American Free Trade Agreement (NAFTA) came into force between the United States, Canada and Mexico on January 1, 1994, it created the world’s largest free trade area that now accounts for nearly 450 million people and collectively produces $17 trillion worth of goods and services. Overall U.S. trade with its NAFTA partners stands at $1.2 trillion and the two countries buy one-third of U.S. exports.

President Donald J. Trump placed NAFTA and its discontents at the center of his presidential campaign and has criticized the deal, which he has described as “horrible,” relentlessly throughout his presidency, threatening to unilaterally withdraw while holding out the prospect that his administration would try to negotiate a better alternative.

In 2017 we first described NAFTA as “in the cross-hairs” in September, while in October we wrote that NAFTA was “still on the brink,” and in November we warned of “turbulence ahead.” In May 2018, we asked whether the NAFTA negotiations were in “overtime or sudden death?” in September assessed whether there was a “deal or no deal” and in October looked at whether the “’Horrible’” NAFTA [could] become the “Historic” USMCA?” Now the Trump administration has simultaneously “started the clock” on passing the USMCA, which means that Congress will receive the deal for consideration in 30 days, and has to ratify it by the end of September, and abruptly threatened and just as abruptly rescinded the threat to slap a 5% tariff on all goods from Mexico starting on June 10 with monthly increases unless Mexico helps stop undocumented immigrants from coming into the United States.

What’s happening now?

On Thursday May 30, President Trump “started the clock” to begin a 30-day window, by the end of that window the administration must submit implementing legislation to Congress. Once Congress receives the legislation it has ninety days to hold a vote. This step came as a surprise to many because members of the Trump administration had previously said that they would wait for Speaker Pelosi to indicate that she was ready to hold a vote. The Speaker was about to appoint Democratic negotiators to discuss concerns over labor standards and enforcement with the administration and had said that prior to holding a vote she wanted to see how Mexico implemented its new labor laws. On the 30^th Trump also threatened to impose rapidly increasing tariffs on Mexican products- which could violate the nation’s current trade agreement with Mexico, NAFTA. The markets reacted instantaneously to the administration’s actions and bond yields and stocks fell in the US and the Mexican peso fell by almost 3.5%. Over the past week Canada and Mexico also began their respective processes to move towards ratification, even as the United States and Mexico reached a separate agreement on migration in order to prevent President Trump’s tariff threat from going into effect on June 10. On May 30, Mexican President Lopez Obrador asked the Mexican Senate to convene a special session to approve the USMCA and on the 29^th Canadian Minister of Foreign Affairs Chrystia Freeland presented a motion in Canada’s House of Commons that allowed Prime Minister Trudeau to introduce a bill that would implement the USMCA.

What are people saying?

• On June 10, President Trump tweeted, “On my way to Iowa - just heard nearly 1,000 agriculture groups signed a letter urging Congress to approve the USMCA. Our Patriot Farmers & rural America have spoken! Now Congress must do its job & support these great men and women by passing the bipartisan USMCA Trade Agreement!”
• On June 8, President Trump tweeted, “Nervous Nancy Pelosi & the Democrat House are getting nothing done. Perhaps they could lead the way with the USMCA, the spectacular & very popular new Trade Deal that replaces NAFTA, the worst Trade Deal in the history of the U.S.A. Great for our Farmers, Manufacturers & Unions!”
• On June 8, House Speaker Nancy Pelosi said, ““President Trump undermined America’s preeminent leadership role in the world by recklessly threatening to impose tariffs on our close friend and neighbor to the south…. and temper tantrums are no way to negotiate foreign policy.”
• On June 8, economist Paul Krugman said, “As far as I can tell the Mexican standoff has ended, for now, pretty much along the lines of NAFTA/USMCA: Trump huffed and puffed, U.S. business managed to convey the message that a trade war would be a disaster, and he basically caved while pretending that he won.”
• On May 30, Speaker Pelosi responded to White House efforts to start the clock on USMCA that this indicated "a lack of knowledge on the part of the administration on the policy and process to pass a trade agreement."
• On May 30, Senator Chuck Grassley, the chairman of the Senate Finance Committee, said that, "Trade policy and border security are separate issues. This is a misuse of presidential tariff authority and counter to congressional intent. Following through on this threat would seriously jeopardize passage of USMCA, a central campaign pledge of President Trump's and what could be a big victory for the country."
• While speaking in Canada on May 30, Vice President Pence said, “Our administration is working earnestly with leaders in the congress of the United States to approve the USMCA this summer.”
• S. Trade Representative Robert Lighthizer wrote, "We believe that the USMCA can — and ultimately will — attract broad bipartisan support in both Houses of Congress."

What’s next?

By the end of June, the Trump administration should submit implementing legislation to the US Congress and the Mexican Senate and Canadian House of Commons should begin considering their nations respective implementing legislation. Congressional support in the US is not assured – particularly since the Trump administration decided not to hold discussions with the Democrats before sending the formal notification of its intent to submit the implementing legislation. In addition, President Trump has indicated that the accord with Mexico to avert the tariffs contains a “very long and very good” secret agreement and “it will go into effect when Mexico tells me it’s O.K. to release it.”

June 2019

By Sally A. Painter and Willa Lerner

Three months ago, we celebrated International Women’s Day by recognizing the significant achievements of New Zealand’s Prime Minister, Jacinda Ardern. Since her rise to the premiership in 2017, Prime Minister Ardern has embodied a new form of leadership—one that balances kindness with strength, rejects racism and isolationism, and normalizes the inclusion of women and other underrepresented groups.

Just days after International Women’s Day, a mass shooting at the Al Noor mosque in Christchurch rocked New Zealand and stunned the world. In the wake of the horrific event, Ardern’s messaging never wavered. She championed compassion, presenting it as more than just a gesture of goodwill, but rather as a responsibility that we all must take upon ourselves. She called for New Zealanders to make the country “the place we wish to be. A place that is diverse, that is welcoming, that is kind and compassionate. Those values represent the very best of us.”

More importantly, she asked that New Zealanders “not leave the job of combatting hate to the government alone,” while moving quickly to demand and enact change in the days and months since the tragedy. With support from Parliament, she implemented a ban on military-style semi-automatic weapons and assault rifles. In May, she organized a summit with French President Emmanuel Macron, inviting world leaders and tech executives to meet and discuss the role of social media and technology in acts of violent extremism. She has actively challenged the “Postman vs. Publisher” debate (codified in Section 230 of the U.S. Communications Decency Act) that exempts technology companies from responsibility for rhetoric posted on their platforms. During the summit, she focused her priorities on starting the conversation, bringing leaders and executives to the table to sign a pledge—the Christchurch Call—to end the use of social media for acts of terrorism.

Prime Minister Ardern’s efforts to promote decency and empathy have extended far beyond her response to the Christchurch tragedy. On May 30, Ardern’s government officially released its “wellbeing budget.” The budget is the first of its kind, seeking to broadly change the way national economic priorities are determined and more concretely enact the reforms Ardern campaigned on in 2017. The budget recognizes the importance of “wellbeing factors” such as life expectancy, education levels, air quality, and “a sense of belonging.” This new policy requires that spending broadly support one of five government priorities: improving mental health, reducing child poverty, strengthening welfare for indigenous peoples, living in the digital world, and increasing sustainability efforts.

Ardern’s government released the new budget in the face of disappointing economic data that predicts a notable slowdown in the national economy. According to the IMF, New Zealand’s economy is expected to grow at a rate of about 2.5 percent in 2019 and 2.9 percent in 2020. As a result, the government has been forced to adopt a more flexible debt target and accept a lower budget surplus. Despite concerns about how the new style of budget will support the slowing economy, Prime Minister Ardern has refused to compromise her values—stating firmly in her speech to Parliament that the new budget represents “what we came into politics to do.”

Critics have often challenged Prime Minister Ardern’s approach, arguing that she spends more time focusing on the branding and “kindness” of a policy than on the details of the policy itself. Yet, at a time in which much of the global population feels uneasy and at odds with one another, Ardern pushes us to consider both our individual and collective humanity and to treat one another with the basic decency and respect we deserve.

May 2019

By Andras Juhasz

Thirty years after the fall of communism in Eastern Europe and on the 20th anniversary of the NATO accession of Czech Republic, Hungary, Poland, and Slovakia, the U.S. administration is showing renewed engagement towards the Visegrád countries (“V4”). The emphasis is now on security and defense cooperation, energy security, and countering Russian and Chinese malign influence in the region.

This is vitally important.

Under President Obama, American diplomats routinely addressed U.S. concerns about democratic backsliding in the region, especially regarding Hungary and Poland. Since Donald Trump’s election, the U.S. has been less critical of the region’s leaders. Its primary objectives have focused on reducing Russian and Chinese influence in the region. This approach has already delivered results for Washington and has the potential to produce similar successes in each of the V4 countries.

The Central Europe “reset button” was publicly pressed earlier this year when U.S. Secretary of State Mike Pompeo visited Slovakia, Hungary, and Poland. In Budapest, Secretary Pompeo argued that a foreign policy vacuum caused by the Obama administration’s disengagement from the region was being filled by the “Russians and the Chinese getting more influence here.” He contrasted this by emphasizing the importance of transatlantic values, civil liberties, and the rule of law. Pompeo also met with representatives of Hungarian NGOs, announced new initiatives to support independent media, and highlighted the fight against corruption. In Warsaw, Pompeo adopted a softer tone; he urged Poland to stay on the course of freedom and democracy, although he did not speak about democratic backsliding in Slovakia.

The fact that the V4 countries approach Russia differently has a significant impact on their relations with the United States. During his visit to the region, Secretary Pompeo spoke about excellent U.S.-Polish security cooperation and welcomed the Polish and Slovak governments' increased contribution to NATO defense. Polish and American interests are also aligned on energy security; both want to stop Russia’s Nord Stream 2 pipeline, which would directly transfer gas to Germany, bypassing Ukraine. This alignment pays dividends: Washington rewards its cooperative regional partners with high-level visits and meetings. President Trump has already met the Polish President and the Czech and Slovak Prime Ministers in the White House.

Hungarian Prime Minister Viktor Orbán has been invited to Washington on May 13, the last of the V4 region’s leaders to meet President Trump. While an important step, there are several Russia-related issues that make it difficult for Washington to elevate its cooperation with Budapest to the next level. Last year, the U.S. publicly expressed its disappointment that the Hungarian government denied a U.S. request to extradite two Russian arms dealers and instead handed them over to Moscow. Shortly after Secretary Pompeo’s Budapest visit, Hungary announced that the Moscow-based International Investment Bank would move its headquarters to Hungary. Some argue that providing diplomatic immunity to the Cold War-era bank's staff may create security problems in Budapest. 

In terms of more strategic issues, Hungary’s hindering of Ukraine’s NATO accession has been a sore point for the Trump Administration as well as other allies. In February, Pompeo warned the Hungarian government to “not let Putin drive wedges between friends in NATO”. The U.S. is putting pressure on Hungary to be more flexible vis-à-vis Ukraine. Ukraine’s newly elected president expressed openness to reviewing Ukraine’s language law, which has been used as a reason by Budapest to oppose its eastern neighbor’s NATO integration.

On a more positive note, the U.S. and Hungary signed a Defense Cooperation Agreement in Washington in April. This was said to be the condition for the Orban-Trump meeting on May 13. Signing the agreement is seen as an important achievement for Washington in its efforts to keep all Central European countries as close allies on security or, at least, in check against Russia and China.

The U.S. is hopeful that the Orbán-Trump meeting will be the final piece in the jigsaw to reset relations with Central Europe.

March 2019

By Daniel P. Erikson and Willa Lerner

Mexico is celebrating its silver anniversary. Chile is getting close to double digits. Colombia has made its debut. Costa Rica is practicing its steps. Argentina, Brazil and Peru are still waiting to be asked to dance. 

Which Latin American country will be the next one invited to join the Organisation for Economic Cooperation and Development (OECD)? After a year of changing fortunes, the contest still remains very much up in the air. Founded in 1960 by 20 original members, the OECD has only accepted 17 new members in the past six decades, with only three of those hailing from Latin America. Still, many countries across the world strive for accession each year, hailing from Europe, Latin America, Asia and elsewhere.

Mexico became the first Latin American country to earn membership into the OECD in 1994. It took an additional 16 years for another Latin American nation, Chile, to accomplish the same feat in 2010. But the trend is accelerating. In May 2018, Colombia became the third Latin American country to earn OECD membership. With Costa Rica in the accession pipeline, and with Argentina, Brazil, and Peru all signaling their desire for an invitation, the opportunity for a broader Latin American presence in the OECD appears increasingly realistic. The pace and sequencing of that expansion, though, is more difficult to predict. Since our 2018 update, Latin America’s reach for the OECD continues to be characterized by the steady, persistent, efforts of the countries striving for accession amidst a season of political volatility.

For many in the international community, membership in the OECD is viewed as a critical step to gaining a stronger foothold in the global economy and winning respect as a desirable destination for foreign investors. In order to join, countries must meet significant requirements and closely follow the guidelines of “accession roadmaps,” including earning a spot in 23 different OECD committees. The OECD governing body, made up of all OECD members, grants the roadmaps—but any member of the organization may refuse a nation’s petition for accession. For the countries of Latin America, these guidelines and roadmaps focus on increasing productivity, enhancing social inclusion, and strengthening institutions and governance across the region.

Colombia steps forward

Colombia became the 37th member of the OECD on May 30, 2018, five years after opening accession talks and receiving an accession roadmap. Prior to accession, Colombia conducted a thorough review and reform of its justice, trade, labor, and corporate governance systems and developed new environmental and sustainability oriented policies. Colombia’s membership in the OECD was made a priority by former President Juan Manuel Santos, and he praised the country’s formal entry into the organization, stating “Colombia already has clear evidence of the impact that the OECD can have in a Latin American country. The accession process has initiated several institutional reform processes and triggered very important internal reflections... It is a region that can benefit greatly from the concepts promoted by the OECD in the areas of governance, transparency and inclusiveness.” As a candidate, President Duque questioned the wisdom of joining the OECD, but as president he has participating in OECD Council meetings and restated the country’s commitment to membership.

Costa Rica on the verge

Almost four years into work on its accession roadmap, Costa Rica continues to make progress on the path to membership. As of November 2018, the nation had completed 12 of the necessary committee reviews—marking the halfway point on its journey to becoming the first Central American member of the OECD. President Carlos Alvarado, elected in May 2018, is aiming to accelerate the process by creating a Special Commission for OECD Affairs within the Costa Rican Legislative Assembly. The commission will lead efforts to adopt certain OECD-related bills in the areas still requiring alignment, including in the fields of competition law, fisheries management, and financial markets. Costa Rica’s roadmap also contains a concentrated focus on reducing expenditures, increasing tax revenues, and improving education and employment opportunities.

Argentina on the move

Argentina has been active in the OECD since the early 1990s, but only initiated a request for accession in June 2016. Under the leadership of President Mauricio Macri, Argentina has closely implemented an OECD-approved Action Plan and participated in a number of OECD committees. In the latter half of 2018, rumors began to arise regarding the possible granting of an accession roadmap. Throughout the year, President Macri capitalized on Argentina’s G20 leadership, using the Summit to highlight the country’s economic development and commitment to OECD values and to garner favor with the U.S. and other G20/OECD members. Although the Macri administration claims to have support for Argentina’s accession request from all member nations, no official accession roadmap has been presented. Comments from OECD leadership recognize important improvements to Argentina’s tax and infrastructure systems, but also indicate that significant progress is needed on poverty, inequality, and educational challenges before a roadmap can be effectively implemented.

Brazil eyes and opening

When newly elected Brazilian President Jair Bolsonaro makes his first official visit to Washington, DC next week, Brazil’s bid for OECD membership will be among the priorities he will seek to advance. Following a timeframe similar to that of Argentina, Brazil has been an active participant of OECD committees since the late 1990s and a “Key Partner” since 2007. Brazil is the most engaged of all the Partner countries, serving as an Associate in 9 OECD committees and a Participant in 15 others. In May 2017, Brazil became the first Key Partner to request membership to the OECD. While the country waits for an accession roadmap, the newly-inaugurated Bolsonaro administration has continued efforts to reform tax and transfer pricing regulations to meet OECD standards and has been public mulling an official request to the Trump administration to support its bid. If the Trump Administration does endorse Brazil for OECD membership, this will be a striking reversal of the positon of previous U.S. governments, which have traditionally been cool to the idea of bring Brazil’s still largely closed economy and often challenging diplomacy into the “rich countries’ club.”

Peru plays the long game

Peru, too, is awaiting an accession roadmap after having first made a request for membership in October 2016. As a member of the OECD Country Programme, Peru has enacted over 29 legislative decrees to implement OECD recommendations. These decrees encompassed reforms in areas including waste management, transparency and exchange of information in tax matters, regulatory policy, cross-border bribery, and rural and urban development. In May 2018, Peru also ratified both the Anti-Bribery Convention and the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, two conventions that continue to strengthen the country’s alignment with OECD values. Former U.S. Secretary of State Rex Tillerson indicated support for Peru last year, and country appears committed to doing the work even while the rewards remain at bay.

Next Steps

2018 marked another big step forward for Latin America’s involvement in the OECD, as Colombia became the third Latin American nation to achieve full membership. Meanwhile, the three current Latin American candidates are joined by a set of European countries, including Bulgaria, Croatia, and Romania, who are all awaiting the OECD’s next move. With new leadership across the region and evolving strategies for countries hoping to accelerate the process, 2019 may be the year that the next Latin American candidate for OECD membership finally gets its turn.

March 2019

By Sally A. Painter and Willa Lerner

On March 8, the world marked International Women’s Day to celebrate the social, economic, cultural, and political achievements of women—and to call for gender parity. Since the day’s founding in 1911, while societies around the world have made progress in advancing the rights of women, recognizing their contributions, and expanding opportunities to participate in public leadership, much more is needed. In the U.S., we’ve seen the first major political party nomination of a woman candidate for president, widespread recognition of the #MeToo movement, and a record-breaking number of women legislators elected to the 116th U.S. Congress.

The theme of the 2019 International Women’s Day Campaign is #BalanceforBetter, calling for greater gender balance in boardrooms, governments, media coverage, the workforce, support services, and elsewhere. A 2014 survey of almost 22,000 firms in 91 countries conducted by the Peterson Institute for International Economics found that nearly 60 percent of the firms surveyed had no women board members and just over 50 percent had no women c-suite executives. The study demonstrated that profitable firms that increased women representation in leadership from zero to 30% saw an average 15% increase in their net revenue margin.

The 2017 election of Jacinda Ardern as Prime Minister of New Zealand—a striking figure in her country’s politics as well as on the international stage—has been an inspiring step in this direction. Not only is she the third female prime minister to represent New Zealand, Ardern is also just the second sitting world leader to give birth while in office and the first ever to take maternity leave. A long-standing member of New Zealand’s Labour Party with nearly a decade of parliamentary experience, Ardern has been a consistent champion of progressive policies, collaborative approaches, and “politics with heart.” As a new world leader, Ardern is helping build a future we can all celebrate—one that values kindness, inclusion, and equal opportunities.

“I refuse to believe you cannot be both compassionate and strong.” – Prime Minister Ardern

Prime Minister Ardern entered office with ambitious policies aimed at reducing inequality and child poverty, addressing New Zealand’s domestic housing crisis, improving mental health supports, and implementing tax reform of the country’s welfare system. Her government has seen success in its first year, including the passage of affordable housing measures and tax credits to support new parents and families.

Yet, Ardern’s ambition is not limited to domestic issues. She has taken strong stances on climate change and immigration, and importantly, has done so in ways that cut through the divisive rhetoric that seems to pervade so many discussions of these and other current topics. Though the housing shortage has made immigration a tense issue in New Zealand, under Ardern, the Labour Party has pledged to double the number of accepted refugees. Ardern has also faced pushback for her decision to stop granting new government permits for offshore oil and gas exploration. She’s stood fast to her position, as she did on a panel with former U.S. vice president Al Gore at the World Economic Forum in January 2019 where she stated that “You don’t have to cede power by acting on climate change... Actually, this is about being on the right side of history.”

“I don’t want to appear to be superwoman because we should not expect women to be superwomen.”– Prime Minister Ardern

Ardern’s biggest success thus far may be in normalizing the role of working mothers. She is realistic about the competing challenges of motherhood and the premiership, and is quick to point out the privileges that allow her to undertake these two important jobs. She regularly champions policies that make it increasingly possible for other women to do the same, launching a $5.5 billion “family package” to boost the incomes of New Zealand families and providing an additional tax credit for families with newborns.

Refreshingly, it’s clear that the values Ardern holds as a mother inform the decisions she makes as prime minster—and vice versa. In a speech to the United Nations General Assembly in September 2018, Ardern succinctly captured the message at the core of all her efforts: “In the face of isolationism, protectionism, racism—the simple concept of looking outwardly and beyond ourselves, of kindness and collectivism, might just be as good a starting point as any.”

Today more than ever, we need examples of smart leadership that can be—at the same time—both strong and empathetic. Prime Minister Ardern should not be overlooked merely as the leader of a small island nation in the South Pacific. She should be seen as a role model for each of us as individuals, for our elected leaders, and for women around the world.

February 2019

By Daniel P. Erikson and Willa Lerner

Venezuela’s political turmoil has been building for years, but it is the tragedy of economic collapse that has given it such urgency. On January 10, 2019, Venezuelan strongman Nicolás Maduro was sworn into office on the basis of his May 2018 reelection that was widely denounced as illegitimate by many Venezuelans as well as the international community. On January 23, National Assembly President Juan Guaidó deemed the presidency to be constitutionally vacant, creating an opening for him to take over as “interim president.” Over the last three weeks, the emergence of two parallel presidencies and the resulting fissures in the international community have also brought new focus to the pressing humanitarian issues. In fact, the economic crisis in Venezuela has been worsening for years and there are no easy solutions to the predicament. With that in mind, it is important to understand that the current political disputes are occurring on a base of economic instability, which will have profound implications for the future.

Economic Collapse

Venezuela has been economically unsteady for many years, stemming largely from economic mismanagement coupled with declining prices for oil, its major export, since 2014. Meanwhile, inflation has risen at a startling rate, while infrastructure investments stagnated or declined. In 2018, though, the bottom fell out. According to the World Bank, annual GDP growth dropped to a record low of negative 18 percent while the International Monetary Fund (IMF) assesses that inflation topped 1.37 million percent. In hopes of stabilizing inflation and restoring national purchasing power, the Maduro government restructured the national currency, cutting three zeroes from the “Strong Bolívar” and replacing it with the “Sovereign Bolívar.” The planned redenomination has made little difference, though, as current data from the IMF suggests that the Venezuelan people may see inflation reach ten million percent in 2019.

Venezuela’s contracting gross domestic product (GDP) also reflects a broader decline in the nation’s exports, which decreased from $153 billion in 2012 to $27.8 billion in 2017, in large part due to Venezuela’s faltering oil industry. Crude and refined petroleum combine to account for over 90 percent of the Venezuelan export market, but production from Venezuela’s state-owned oil company (known as PDVSA) has been in a rapid free-fall throughout the Maduro presidency. With fewer export dollars coming in, the Venezuelan government has been forced to use the little money available to service their high external debt load, rather than purchase the imports necessary to support an increasingly desperate population. According to the World Bank, Venezuela’s national debt rose to $105 billion in 2017 and is owned in large part by the United States, China, and Russia.

New sanctions issued by the Trump administration at the end of January will likely lead to a further decline in Venezuela’s exports, despite efforts by PDVSA to find alternate buyers. The sanctions prevent U.S.-based entities from purchasing Venezuelan heavy crudes or selling refined products and diluents to PDVSA. The Venezuelan government will likely look to India and China to increase their purchases and play an even greater role in the national oil market. The White House reports that the targeted sanctions will block $7 billion in PDVSA assets and will cause $11 billion in lost export profits.

Social Impacts

One study estimates that more than 61 percent of Venezuelans were living in extreme poverty in 2017, nearly triple the 23.6 percent living in extreme poverty just three years prior. Only 13 percent of Venezuelans continued to live above the national poverty line in 2017 as per capita GDP dropped to $12,500. More than 78 percent of the population also report that they have involuntarily eaten less, either because food has not been available or because their monthly salary is not sufficient to cover the expense.

Few options are available to those looking for relief from resource scarcity, as corruption and repression permeate Venezuelan civil society and governance. According to Freedom House, Venezuela is “not free,” and in fact scores a dismal 19 out of 100 possible points for political rights and civil liberties and freedom. (While Venezuela had never been a high performer on these indices since the late Hugo Chávez took power in 1999, as recently as 2016 Freedom House still judged Venezuela to be “partly free” on the basis of political pluralism such as the 2015 victories by opposition candidates in the National Assembly, a body that Maduro later attempted to neuter, which provoked the current crisis.) Furthermore, the Venezuelan people are not disillusioned about the current status of political institutions in their country. In its 2017 survey of Venezuela, respected polling firm Latinobarómetro found that nearly half of all Venezuelans polled – 48.8 percent – were “not at all satisfied” with the functioning of democracy, while only 8.8 percent described themselves as “very satisfied.” 

Additionally, the Venezuelan economic crisis has provoked a refugee crisis – as Venezuelan citizens are increasingly voting with their feet and seeking to leave the country for other neighbors in South America, the Caribbean, and increasingly the United States. Colombia now hosts approximately one million Venezuelan migrants, or one-third of the total Venezuelan migrant population. The cost of providing basic services to Venezuelan migrants requires an estimated 0.2-0.4 percent of Colombia’s short term GDP. With almost 400,000 Venezuelan migrants seeking asylum in the region, and an additional 960,000 having accepted other forms of short and long term legal residency, the cost of Venezuela’s economic crisis will not be contained within its national borders.

Venezuela’s current political struggle, then, will eventually be followed by an equally dramatic struggle for the country to restore its economic footing, recover human capital, and reverse the crushing poverty that has affected millions of Venezuelans.

This will be a daunting task, but one of vital importance for Venezuela and the international community to embark on together.

February 2019

By Sally A. Painter and Pero Jolevski

On February 6, 2019, Macedonia signed its official protocol for accession to join the North Atlantic Treaty Alliance (NATO). After years of waiting, the country will finally join the Alliance at the upcoming December Summit in London. In this time of transatlantic skepticism, this is welcome news—particularly after the historic failure of the 2008 Bucharest NATO Summit when Macedonia’s accession was vetoed and Georgia and Ukraine’s Membership Action Plans (MAP) rejected.

Most importantly, this accomplishment underscores the abiding notion that NATO is first and foremost a community of values—for which any country’s rightful accession cannot be held hostage to political interests.

Macedonia’s path to joining NATO has not been easy. And while the international community continued to view the long-standing blockage of Macedonia’s NATO accession by Greece as unfair, successive Macedonian governments did not rest easy. Each worked to ensure that their country remained ready to join. Despite the excessive waiting period and numerous obstacles, Macedonia’s NATO accession should be viewed as a tremendous achievement—one that portends immense contributions to regional security and stability.

While it can be asked whether the final compromise deal brokered between Greece and Macedonia was fair in the end—given domestic opposition in both countries—it is undeniable that both countries’ political leadership, at the highest levels, took significant political risk to create a path forward to overcome the name barrier. Indeed, Macedonia’s pending membership in NATO is seen as an important step towards its full Western integration, culminating with membership in the European Union.

The road to NATO

When Macedonia received its first NATO Membership Action Plan (MAP) in 1999, its neighbors held varying degrees of anti-NATO sentiment relating to the Kosovo War with Serbia. Nearly 10 years later, in October 2018, the country began its 18th consecutive MAP—a record number by any country to date. Throughout the ensuing years, Macedonia remained staunchly pro-NATO, pro-EU, and was vocally committed to the Euro-Atlantic alliance. Importantly, the country played a key role during the Kosovo refugee crisis with the stationing of NATO and UN peacekeeping missions.

Tragically, at the 2008 NATO Summit in Bucharest, Macedonia’s NATO accession was vetoed by Greece, even though it was on target with its reforms and its EU accession protocols. Still, all hope was not lost and the country continued to push to join NATO, while supporting the Alliance whenever called upon. Last week’s achievement is a testament to the steadfast commitment by four successive Macedonian governments since the late 1990s. The fact is that despite political leadership changes, the NATO issue—and pro-Western integration—has proven to be a priority across the Macedonian political spectrum.

Ultimately, it is the people of Macedonia who stand to benefit from the country’s NATO membership, which promises long-term security guarantees, stability, and border protection. NATO too benefits by having a strong ally with a proven track record of support.

Regional politics

The integration of South Eastern Europe into the European Union and NATO is a fundamental part of finally achieving a “Europe whole, free and at peace,” the famous phrase first used prominently in 1989 by U.S. President George H.W. Bush at the end of the Cold War. This vision is ever more important as Russia attempts to develop strong ties in the region. 

But while Macedonia is moving forward with its reforms for joining NATO and the EU, other countries in the Balkan region also need to work towards resolving their own issues. Serbia and Kosovo need to find a solution to their disputes, and Bosnia and Herzegovina needs more support from the EU and the U.S. to implement heavy structural reforms.

Ultimately, Macedonia’s Euro-Atlantic integration stands to play a crucial, stabilizing role in the region. As a neutral country from the former Yugoslavia, Macedonia can act as a regional leader and mediator in Central and Eastern Europe to help other countries address their shared challenges.

Kudos to Macedonia and welcome to NATO!

February 2019

By Étienne Bodard

Last January 2018, French President Emmanuel Macron gathered more than 140 global business leaders at the Choose France Summit—to promote France as an attractive destination for up to €3 billion in foreign investment. Soon after at the World Economic Forum in Davos, Switzerland, Mr. Macron triumphantly declared, “France is back.”

One year later, President Macron again touted the Choose France theme for 2019. Only this year, he poignantly skipped the annual Davos gathering to focus on challenges to his reform agenda at home.

What happened?

The launch of the so-called popular “yellow vest” protest movement that began in France in November 2018 has forced Mr. Macron to make a number of concessions to his overall reformist agenda. These include canceling a proposed fuel tax increase; conceding a €10 billion plan to increase purchasing power (wage rises for the poorest workers and tax cuts for pensioners); postponing constitutional reforms; and launching a “Grand Debate” on key topics of concern, which appear to be limited to taxes, ecology and environment, State organization, and democratic debate and citizenship.

At the national level, French leaders have voiced their concern over the protests. Minister of the Economy and Finance Bruno Le Maire went so far as to characterize the economic impact of the yellow vest movement as an "economic catastrophe," based on its impact on retailers, hotel chains, high-street stores, and restaurants.

In this context, questions are arising in the minds of foreign investors. Will President Macron retreat from pro-business measures that have already been implemented? How will the Grand Debate impact the government’s economic and social policy? Will the policy reform agenda be modified or not?

Broadly speaking, the yellow vest movement is not seen as having weakened France’s overall attractiveness as a destination for foreign investment. According a recent Kantar survey for Business France and based on answers from 500 foreign opinion leaders from Germany, UK, United States, India, and China, France remains the second most attractive European country for foreign investment, behind Germany and ahead of the UK. Among foreign investors, generally, 87% view France as attractive, while 61% view France’s attractiveness as having improved in the past two years.

On the other hand, a recent report released by the American Chamber of Commerce in France and Bain & Company mitigates this overview. The report notes that while more than 50% of U.S. investors see France as being more attractive than other EU countries and 80% of those are positive about Macron’s economic and social reforms, France's overall attractiveness has slightly decreased. In addition, 80% of respondents are worried about the current French social climate, especially regarding potential long-term consequences of the yellow vest movement.

That being said, the 2019 Choose France Summit has announced €547 million in foreign investment. In the health sector, Chinese Microport announced €350 million for a new R&D center to be located near Paris. In the food sector, Mars Inc. plans to invest €120 million in its industrial sites, while Cisco says it will invest €60 million in research and innovation. In artificial intelligence (AI), both Microsoft and IBM are set to create dedicated innovation centers in France.

Moreover, signs point to President Macron continuing with his planned pro-business agenda and building on the measures implemented in the first 18 months of his 5-year term—including defending a 30% flat tax on financial income and labor law reform. The government’s Action Plan for Business Growth and Transformation is still on track to be implemented in the first half of 2019.

Notwithstanding this momentum, Mr. Macron’s agenda will be constrained by other factors, not the least of which is the continuing resonance of the yellow vest protest movement. The May 2019 European elections—in which a rise in far-right and nationalist trends is projected—are also expected to alter some of the original planned measures of President’s Macron’s governmental program. For example, Mr. Macron is considering temporarily freezing corporate tax reductions, one of his signature campaign promises which included a pledge to reduce corporate taxes from 33% to 25% by 2022.

To further respond to the demands of the yellow vest movement, President Macron is likely to leverage France’s presidency of the G7, whose theme this year is the fight against economic inequality. Fighting tax evasion—a demand by the yellow vests—will also be a focus, in part by leveraging France’s new “GAFA” taxation (Google, Apple, Facebook, Amazon), slated to raise up to €500 million for public coffers.

How does this all add up?

Even though President Macron does not seem to be reversing his pro-business stance, he does appear ready to consider some concessions aimed at raising the overall purchasing power of the average French citizen and middle classes. Indeed, additional measures are expected to be announced following the conclusion of the Great Debate. Some proposals could yet still be submitted via a potential public referendum that might be organized by Mr. Macron for May 26—the date for European elections in France—or later.

To answer the twin challenges of satisfying the yellow vests' concerns while at the same time raising France’s profile and investment attractiveness—all within a fraught post-Brexit context—President Macron is likely to rely on his trademark presidential “en même temps” (“at the same time”) approach. It is a daunting bet, but the president appears determined to pursue both ends, concurrently. Only a future analysis will prove if President Macron will have succeeded in this wager.

In the meantime, Mr. Macron has a date for a first appraisal: January 2020—you guessed it—the date of the next Choose France Summit.

Stay tuned as we continue to track these developments in France.

December 2018

By Karen A. Tramontano

With the final tallies now in, it may be helpful to respond to the frequently asked question—who actually won the 2018 U.S. Midterm elections?

On the eve of Election Day, it was not clear whether Democrats would take over leadership of the House from the Republicans—who have held it since 2011—and, if they did become the majority party, whether it would be a so-called “blue wave,” effectively sweeping Democrats into power. Early predictions soundly declared that there would be “no blue wave” and, despite the fact that Democratic candidate victories were trickling in every day, the discussion in the days and weeks that followed seemed only to lead to further confusion about which party had actually won. In fact, it was not until December 6th when we learned that Democrats would hold a 40-seat majority in the House of Representatives.

Because of the slowness of the results and the early “no blue wave” declaration, the easily digestible conclusion for the public was because Democrats had lost the Senate, Republicans would maintain control. In this veritable “fog,” the slow but steady stream of seats piling up for House Democrats was all but ignored. And, by oversimplifying the results, many midterm election detailed were missed. They deserve a second look.

What actually occurred?

The 2018 U.S. Midterm elections produced a record turnout of over 49%—it was the highest voter turnout in a U.S. midterm election since 1914. House Democrats received over 60 million votes, to the Republicans’ 50.6 million votes. This exceeds the only other time in U.S. history (1970) where the party not in control of the White House received nearly as many votes in a midterm election as the sitting president received. (President Trump was elected with less than 63 million votes in 2016.)

In the Senate, Democrats were defending 24 seats, of which they won 20. That Democrats would win 20 seats was hardly certain. In fact, less than one year ago, political prognosticators argued that Democrats would likely lose at least 9 seats in the Senate: the 4 seats that they lost—Missouri, Indiana, North Dakota, and Florida—and the 5 states that President Trump won in 2016: Ohio, Wisconsin, Michigan, Pennsylvania, and West Virginia.

The Republican Party had an easier playing field in this midterm election, having to defend only 9 seats. They won 7 seats and by “flipping” 4 additional Senate seats held by Democrats, the Republicans won a total of 11 seats. Democrats were also able to “flip” 2 Senate seats previously been held by Republicans. 

Although Senate Republicans successfully framed the election results as a victory, their continued control of the Senate was not an unexpected outcome; the only unknown was their margin of control. In the end, the net gain for the Republicans in the Senate was just 2 seats, over last term’s previous 1 seat margin of 51 – 49. The incoming Senate will be a 53 – 47 Republican majority, with the Democrats joined in their voting by the two Independent Senators, Bernie Sanders of Vermont and Angus King of Maine.

In the House, the Democrats had a net gain of 40 seats. This is the highest number of seats Democrats won since the post-Watergate midterm elections of 1974 and a larger gain than Democrats achieved in the so-called “wave” elections of 1982 and 2006. Democrats also won by the largest margin of votes in any U.S. midterm election ever—receiving 9.5 million more votes than Republicans—breaking the previous midterms’ margin of victory record of 8.7 million votes in 1974, following President Nixon’s resignation.

Ultimately, these results where neither predicated nor easily achieved. Initially, Democrats targeted the 23 Republican House districts that Hillary Clinton won in the 2016 presidential election. Victories in those 23 districts would not ensure Democrats would have a majority in the House. To gain control of the House, Democrats had to compete and win in those districts where President Trump won in 2016, including some where he won by significant margins. In the end, the 40-seat margin came because Democrats won 17 so-called “Trump districts,” including long-held Republican districts in Virginia, Texas, Tennessee, Georgia, North Carolina, and Oklahoma.

Analyzing the results

Analyzing the midterm results—understanding who voted and why—is always controversial, but nonetheless worth discussing. Reviewing a cross-section of exit polls illustrates, contrary to many press reports, that these midterm elections were not only about Republicans losing suburban college educated white women; it was also about Republican support declining in nearly every voter cohort.

For example, white non-college educated women who, in 2016 voted Republican by 61 – 34 %, in 2018 voted Republican by a lower margin of 56 – 42 %. Similarly, white college educated women who voted for Democrats in 2016 by a margin of 51% – 44%, in 2018 increased their margin of support for Democrats by a margin of 59% – 39%.

Typically, the media tends to highlight voting shifts only when a political party is able to gain a majority of support of a voting cohort—for example, white men, college educated women, etc. Rarely, however, does the media report movement within voting cohorts where that voting cohort represents a minority of a party’s support. But ignoring shifts within those cohorts discounts movement that could cost a candidate an election.

For example, while a majority of white men voted Republican in the 2018 U.S. midterms (51% to 47%), the shifts for college educated and non-college educated white men was +10 and + 14, respectively. In 2016, college educated men gave Republicans a margin of 53% to 39%. But in 2018, that margin shrunk to 51% to 47%. Further, non-college educated men voted overwhelming Republican in 2016 by a margin of 71% to 23%, but in 2018 their margin of support for Republicans decreased to 66% to 32%.

There were also shifts of support to Democrats among rural and suburban voters. In 2016, rural voters voted Republican by a margin of 61% to 34%. In 2018, that margin shifted from 56% to 42%. This 13 point shift reduced a 2016 Republican 27 point advantage to a 14 point advantage in 2018. In parallel, in 2016, suburban voters gave Democrats a slight advantage of 48% to 45%. In 2018, that margin jumped to 53% to 45%.

Each margin for a campaign could mean the difference between victory and defeat for a party’s candidate. And, while campaigns are focused on increasing the majority of supportive voters across cohorts, they are also focused on decreasing the margin of non-supportive voters. Examining these underlying and shifting voter patterns—especially in states critical to the 2020 Electoral College—will be essential to shaping a winning presidential campaign for either political party.

What does it all mean?

What do these midterm elections results mean? And what do they predict, if anything, about the 2020 U.S. presidential election? An honest answer is that it could all mean nothing. While political leaders and pundits try to draw various conclusions, the results of midterm elections have not exactly foretold the results of a presidential election. Remember 2010 when Republicans had one of their largest victories ever—when they gained 65 seats? At the time, every political analyst predicted the end of the Democratic Party and declared President Obama a one-term president. That did not happen. In 2012, President Obama won re-election with 51% of the popular vote and 332 Electoral College votes.

That said, there are lessons to be gleaned from the 2018 midterms. Voters are energized and they want Congress to get to work to solve problems, especially those related to healthcare and employment. The 60+ million voters who voted for Democrats in the House of Representatives did so to put a check on the power of the Executive Branch. Based on the 2018 midterm results, including elections for Governors and Attorneys General, Republicans—when defending 22 Senate seats in 2020—may face robust challenges in Maine, Arizona, and Colorado. Likewise, 2018 House and state-wide election results appear to demonstrate a changed political landscape for Republicans in Iowa, North Carolina, and Kentucky.

Thus, if the Democratic Party’s 2018 successes are predictive of state Electoral College wins in 2020, the Republicans may have difficulty getting to 270 Electoral College votes, even if they win Florida and Ohio. Like all elections, however, what happens two years earlier is far less important than who the candidates are, what their vision for the country is, and what the voter turnout will be. These are the factors that always determine the final outcome.

December 2018

By Mathilde Defarges and Étienne Soula

In May 2019, Europeans will vote on who will represent them in the European Parliament until 2024. The experience of Brexit, the perceived U.S. administration’s deprioritizing of Transatlantic relations, and the rise of extremism and nationalism has brought a period of significant soul-searching across the EU. In this context, the 2019 EU elections will serve as a bellwether for the bloc’s political direction in the coming decade. The new EU Parliament’s make-up will be a key factor defining the general direction of the EU and may have a decisive impact on the conditions surrounding the exit of one of the bloc’s largest economies, the UK.

The only certainty of the 2019 elections is that the two main political groups that have guided much of the EU Parliament’s operations over the past 20 years—the Group of the Progressive Alliance of Socialists and Democrats (S&D) and the conservative European People’s Party group (EPP)—will no longer have enough seats to reach a majority and will thus require new allies. While the most talked-about newcomers are seen as being in the extremist and nationalist camps, it is unlikely that these movements will be a driving political force in the new European legislature, primarily due to their disparate agendas and uncompromising stances on matters of public policy. Other parties, such as the Center group (Alliance of Liberals and Democrats for Europe) and the Greens group (The Greens European Free Alliance) are likely to create shifting coalitions that will have to take into account an unprecedented amount of interests and sensitivities.

In this context, it is important to recognize that the EU Parliament’s powers have been noticeably strengthened as a legislative body in recent years. The 2009 Treaty of Lisbon resulted in the EU Parliament being able to choose the head of the European Commission, which has become a subject of heated debate. In addition, any international agreement entered into by the EU, including the eventual Brexit deal, must be ratified by Members of the EU Parliament (MEPs). These strengthened roles may have a significant impact in the coming years, including as they relate to Brexit and other major policy issues.

Traditional parties weakened

Currently, among the 28 EU Member States (27 post Brexit), the more populous European countries occupy a much larger share of the 751 seats in the EU Parliament (705 post Brexit). For example, Germany alone has only 12 fewer seats than all four Visegrád countries combined (Czech Republic, Hungary, Poland, Slovakia). This means that many observers will focus on the elections in countries such as France, Germany, Italy, and Spain. The departure of the UK, the bloc’s third most populous country, will have a significant impact on the composition of the EU Parliament. Of the 73 British MEPs heading home, 20 were Labour party members sitting with the S&D group in the EU Parliament, a heavy loss to one of the Parliament’s most established political parties.

Overall, the S&D group is projected to lose around 50 seats out of its current 187 seats, more than a quarter of its ranks. With Socialist party candidates decimated in France and Italy and taking heavy losses in Germany, and with the UK contingent heading home, the incoming S&D group will be comprised of about as many Spanish and Romanian MEPs as Germans or Italians. Building a coalition and attaining a critical mass within the group will thus require reaching out to more representative nationalities than is currently the case.

On the other side of the political spectrum, the European People’s Party (EPP) seems set to suffer more limited losses and retain more members in the upcoming legislature. However, the EPP faces an internal debate between the traditional Christian democrats and the so-called forces of “illiberal democracy” championed by the likes of Hungary’s Prime Minister Viktor Orbán. Moreover, German Chancellor Angela Merkel’s recent setbacks in local elections are sure to weaken the EPP’s current center of gravity. Should this result in a move in the direction of Central Europe’s so-called illiberal trend, there is a risk that some of the more moderate EPP MEPs will head for the exits. If that happens, according to the latest polls, the EPP could lose 58 out of 161 seats.

A rise of far right and nationalist trends

Not only are the two main EU political groups expected to lose dozens of seats, there is significant concern surrounding the rise of far-right movements in Europe, where Lega Nord in Italy and AfD in Germany are each expected to gain seats. As significant as this far-right turn may be, a recent report by the Jacques Delors Institute points to several obstacles standing in the way of Europe’s disunited nationalist forces. For example, Poland’s Law and Justice and Belgium’s New Flemish Alliance advocate reform, not abolition, of the EU. In addition, Western far-right parties have strong pro-Russian leanings, a red line for Central European and Baltic parties. Moreover, the Italian Lega Nord and the anti-migration coalition government in Austria saw their planned cooperation marred by disagreements on immigration policy. These diverging national interests and priorities of populist parties are reflected in their inability to join together in the same political group inside the European Parliament.

That being said, American Stephen Bannon, having been boot out from his White House perch by President Trump, is hard at work in Europe to form such a coalition. Initially lukewarm, several European far-right leaders have recently demonstrated enthusiasm at the prospect of collaborating with Trump’s ex-adviser. On December 8, Bannon joined France’s Rassemblement National (“National Rally”) party head Marine Le Pen and Belgium’s Vlaams Belang (“Flemish Interest”) head Tom Van Grieken in Brussels to advocate against the UN Global Compact for Migration, making all but explicit their intention to work together in the European elections. Still, it remains to be seen whether other far-right parties such as Germany’s AfD— which has kept its distance from Bannon who is seen as toxic by the German population—or those in Finland and Austria will join Bannon's movement.

In the European Parliament, the anticipated far-right swell in certain EU Member States is expected to be somewhat offset by the departure of the sizeable Eurosceptic and right-wing populist UK Independent Party (UKIP) contingent. All in all, at that stage, the Jacques Delors Institute anticipates that a patchwork of populist groupings will occupy between 20- 25% of the EU Parliament’s 705 seats (today 19.6% of the 751 seats) and that their inability to coalesce into a united force will limit them to playing solely the role of “spoiler.”

The indispensable center

The political actor most eager to position himself against the purported far-right swell is none other than French President Emmanuel Macron. For the past few months, President Macron has been traveling across the European continent trying to gather allies for the May 2019 EU elections. His legitimacy as the European leader able to tackle populism has been recently damaged by the so-called “Yellow Vests” protests in France. It is important to recognize that these recent protests are not the product of organized unions or political parties. Their structure-less and leaderless nature makes them potent, volatile, and difficult for the government to handle. According to observers, they are seen as the next stage in a broader populist challenge to Western democracies, bringing together a disparate, leaderless, and grassroots coalition calling for economic and social protections. Just yesterday, President Macron declared in an official address in response to the Yellow Vests movement that France is in an “economic and social state of urgency” and announced concrete measures in response, such as the rising of the minimum wage.

Before the Yellow Vests protests, President Macron’s En Marche movement was anticipated to gain 15 to 20 seats, far from the amount required to shape the European Parliament’s decisions. At the ALDE Congress in Madrid, Spain on November 9, 2018, En Marche formally announced that it will be working to build a new coalition with Liberals, as the ADLE group was hoping for. This grouping would hold around 10% of all available seats (today ALDE represents 9.1%), enough to build a majority coalition with the EPP and S&D.

Rise of the Greens’ influence

The Greens are another group looking to capitalize in the EU Parliament on their recent electoral successes in Germany and Belgium. Their projected gains in Germany would potentially make them the country’s second political force, ahead of both the AfD and the Socialists. This would mean that Germans would make up about half of the European “ecologist” group. And while Europe-wide projections anticipate that the Greens will only snatch around 6% of the European Parliament’s seats, their willingness to work with other pro-European forces means that they are more likely to be included in a governing coalition than the more uncompromising parties.

Major changes and challenges ahead

Whatever coalition emerges from the 2019 EU election promises to be the Parliament’s most diverse in years, with a record number of political sensitivities carried by a plurality of nationalities. This diversity could lead to changing alliances depending on the legislative agenda. Parties that are allies on immigration might turn to other forces on labor rights issues and so on and so forth on a host of other policy issues.

Furthermore, change is not confined only to the EU’s legislative body. While extremist and nationalist parties will likely wield limited influence in the EU Parliament, they will be more than capable of obstructing the European Council, where unanimity among all 27 Member States is required on such sensitive topics as foreign policy, taxation, and health coverage. A first sign of this rising influence may be found in the recent withdrawals of several European Member States from the UN Global Compact on Migration under pressure from the far-right.

All in all, the projected seat losses by the European Parliament’s two main parties signal the end of an era. These actors that have guided the institution’s debates for the last 20 years will need new allies to reach a majority. This fact could reinforce the need for the European Council and Commission to negotiate with the European Parliament, reinforcing the latter’s role.

At a time when the EU is dealing with the consequences of Brexit and pondering its place in a world increasingly shaped by a more inward-looking United States, a resurgent Russia, and an expansionist China, the European Union needs a new direction. If nothing else, the new balance of powers likely to emerge in the European Parliament after the 2019 promises to offer just that.