Insight and Analysis

Dan Erikson speaks at the Council on Foreign Relations

October 2017

By Jeremiah J. Baronberg

Though not without controversy, the effort to bring about a thaw in the U.S.-Cuba relationship was one of the Obama administration's signature foreign policy priorities. The attempted rapprochement sought to normalize bilateral relations, including restoring full diplomatic ties and easing travel restrictions.

As the new Trump administration takes shape, the durability of these changes is now being severely tested by recent reports of unattributed “sonic attacks” that have been experienced in the country by U.S. as well as Canadian embassy diplomatic personnel. While it remains unclear who is behind these unexplained phenomena, the U.S. has removed the majority of its embassy personnel from the country, leaving behind a skeletal crew, and issued a travel warning against Americans seeking to visit Cuba. Soon after, President Trump expelled 15 Cuban diplomats from the United States.

In this context, Dan Erikson spoke on a panel at the Council on Foreign Relations entitled, Cuba 2018: What to Expect. Dan argued that we are now at an extremely important crossroads in U.S.-Cuba relations, one that requires a U.S. approach that is "cool, calm, collected, and strategic." He outlined three principal elements that underlie the current sensitive political moment:

1. Political transition. Next year, Raul Castro is scheduled to step down as president, which means that for the first time in 59 years, there will no longer be a Fidel or a Raul Castro leading the country.
   
   
2. Progress in normalization. The Obama-initiated normalization process is at a very fragile moment, with the new Trump administration having announced in June that it would conduct an inter-agency process will result in the issuing of a new set of regulations outlining its policies vis-à-vis Cuba.
   
   
3. Regional dimension. The ongoing crisis taking place in Cuba's close ally Venezuela has implications for the U.S.-Cuba relationship and the stability of the region as whole.

Dan noted that the Obama-initiated effort to normalize ties between the two countries should be understood as a long-term process. Initial steps along the way included reestablishment of diplomatic relations, greater freedom of travel for Americans who wished to visit the Cuba, and regulatory changes which enabled entrepreneurs and businesses in the United States to engage with their Cuban counterparts. The latter helped to push along a trend that was already underway in which more than half a million Cubans are now in the self-employed, independent economic sector and no longer dependent on the Cuban state for their livelihood. This is already leading to greater economic autonomy for Cuban individuals, and over time is bound to create greater political autonomy as well.

From the U.S. perspective, Dan noted that there is today a much broader set of American actors that have interests in Cuba. These include members of the business sector, civil society, and religious communities. Having witnessed what he called a “huge level of interest” by American investors in Cuba, Dan emphasized that U.S. businesses that have managed to break away from the “herd mentality”—and to find sector or an angle that really works for them—have found the most success.

Under President Trump, there has been a very dramatic shift in tone, and the administration has signaled its intent to take a much harder line on Cuba. Still the “devil is still in the details” when it comes to any major changes in U.S. posture towards the country. And while the removal of the U.S. diplomats from Cuba and the expelling of Cuban diplomats from the U.S. may be a flash-point, there has not yet been a regulatory set of changes to match.

Today, Cuba watchers are still awaiting those regulations. Stay tuned.

October 2017

By Pero Jolevski

The June 2016 public referendum by the UK electorate to leave the European Union has dramatically affected London’s status as a banking and financial services hub. Previously, international banks operating out of London and doing business in the EU benefitted from the UK’s member status in the union. Now, with the UK’s pending exit, all that has changed, bringing new licensing requirements for banks whose EU operations are based in the UK.

This is all highly relevant because according to estimates of the Bank of England, half of all EU debt and equity is issued by financial institutions from, or based in, Britain. Brexit, set to occur officially in March 2019, could potentially lead to the loss of the EU market for many of these banking institutions, causing a new financial crisis in which central banks would be compelled to inject the necessary capital into financial institutions in order to stabilize financial markets. 

It’s now decision time for these banks.

Approximately 40 international banks—mostly from the U.S., UK, Asia, and the Middle East— conduct their EU business through offices in London. To continue these operations in the EU post-Brexit, they will be required to apply for a new license with both the European Central Bank (ECB) as well as the local country regulator where they will be situating their new subsidiary.

While this application can take up to one year to be processed and approved, less than one quarter of these banks have submitted their applications. This delaying tactic is seen by observers as a strategic move by banks to avoid the departure of their top-level management. But the consequences of this delay could overwhelm the capacity of the ECB if applications are submitted at the same time, causing delays in transitioning the banks’ operations in a timely fashion.

Setting up a new operations office or subsidiary could take up to two years for certain financial institutions and permissions from national regulators and ECB supervisors requires a thorough business plan and management team. The Bank of England anticipates that negotiations between the EU and the UK known as the “banking transition deal” will be agreed to by December 25th in order to ensure a smooth transition of operations.

In addition to complying with EU rules, UK based banks will need to either move their operations entirely to an EU member state, or set up subsidiaries at new locations within the EU, the most attractive of which have proven to be Frankfurt, Amsterdam, and Dublin. Wall Street banks such as Goldman Sachs, Morgan Stanley, Citi Bank, and JP Morgan have already chosen Frankfurt as their future EU banking hub. According to a recent study, it is predicted that Frankfurt will add over 10,000 new bankers, creating tens of thousands of additional jobs over the next four years.

Still, even post-Brexit, London’s strength as a financial services hub has not entirely dissipated. Over 130 international banks recently expressed interest in applying for new UK licenses according to the Bank of England. However, converting their operations into UK subsidiaries could be expensive for some EU banks as it requires building up local capital and resources, rather than relying on a parent company.

While there remains significant uncertainty surrounding the specific "type" of Brexit scenario that will eventually occur, players in the international financial services sector must soon decide how best to structure and locate their operations if they want continued access to the EU and UK markets.

Stay tuned for more on the different types of Brexit scenarios.

October 2017

By Tamar Gegechkori

Over the past several decades, the strategic significance of the Arctic region of the North Pole has become a major field of international interest. With an estimated 13 percent of the world’s undiscovered oil and 30 percent of conventional natural gas resources, the region has generated strong competition among the Arctic players, which include Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden, and the United States as the eight countries with sovereignty over the area.

In February of 2017, the United States took a significant step forward when the Coast Guard awarded a fixed-price design contract to five American shipyards, requiring them to examine the optimal design and realistic schedule of building a polar icebreaker. The program represents an advance that many have felt was long overdue. A recent report by the National Academies of Sciences, Engineering, and Medicine noted that the U.S.’s insufficient icebreaking capacity prevents it from protecting its interests, executing policies, and meeting its obligations in the Arctic and Antarctic regions. While the Coast Guard has been pushing hard for the funding of new polar vessels (ideally requiring three heavy- and three medium-scale icebreakers), the steep price estimates of over $1 billion USD per ship has been a significant deterrent. 

In contrast to the United States’ two operational icebreakers, which are both well over their intended 30-year service lives, Russia boasts 31 polar icebreakers, with 11 under construction and four more planned for the future. The Kremlin’s large-scale military exercises and planned expansion of its already substantial polar fleet has made Russian presence in the region increasingly harder to ignore. In 2014, Moscow established a new Arctic command to further facilitate and coordinate its military and scientific activities in the region. Present day uncertainty as a backdrop has further complicated U.S. strategy to detect, deter, prevent, and defeat threats in the Arctic.

Hence, the U.S. Coast Guard’s chosen approach. The design contracts awarded in February aim to provide realistic figures for future steps of acquisition – an attempt to preemptively decrease the high price-tag by implementing a “parent design” patent that allows an American shipyard to re-modify an existing icebreaker design to fit the Coast Guard’s specific scientific and military capability requirements.

This presents an interesting opportunity for U.S. companies to partner with overseas shipyards to work on their patent design, thereby saving time and money by not re-inventing the wheel. General Dynamics, which is one of the five awardees, has already partnered with the Norwegian ship designer and manufacturer Vard, and will be re-designing their patent for Coast Guard specifications.

As the 12-month period of design contracts slowly approaches its end, the U.S. Coast Guard is planning to release the final RFP (request for proposals) for three polar icebreakers by fiscal year 2018. With the delivery of a third and final ship by FY 2026, U.S. efforts to buttress its physical presence in, and access to, the strategic Arctic region is a launching point that many believe has been neglected for far too long. This also presents an opportunity for U.S. firms with a vision and an understanding of the procurement process, among other expertise.

October 2017

By Daniel P. Erikson and Gabriella Ippolito

As part of our renewed focus on the Western Hemisphere, the Blue Star Brief is pleased to introduce “Spotlight on NAFTA,” a feature that will track what is occurring behind the headlines as the United States, Canada, and Mexico try to complete negotiations by the end of 2017.

Tensions are quickly escalating around the talks to renegotiate the North American Free Trade Agreement (NAFTA). Hanging in the balance is the fate of world’s largest free trade area linking 444 million people producing $17 trillion in goods and services.

What is happening?

• Three-way negotiations between the U.S., Canada and Mexico have been launched and are continuing at an intensive pace. The third round took place in Ottawa and wrapped up on September 27, and the next negotiating session will take place this week in Washington from October 11 to 15. After the third round, negotiators released a joint statement that said the negotiations on the chapter dealing with small and medium enterprises had been substantively completed and that the chapter on competition was near completion. They also emphasized that “Ministers from all three countries have reiterated the mandate to the Chief Negotiators to continue on an accelerated path.”

What are people saying?

• On September 28, U.S. Trade Representative Robert Lighthizer said the goal of reaching a deal this year is "very, very optimistic" and will be "very, very difficult. But there are reasons to do it. So when there are reasons to do it, we have a lot of motivation."
• This week, President Trump told Forbes magazine, “I happen to think that NAFTA will have to be terminated if we’re going to make it good. Otherwise, I believe you can’t negotiate a good deal.” Trump added that the Trans-Pacific Partnership “would have been a large-scale version of NAFTA. It would have been a disaster.”
• In a trip to Mexico, U.S. Chamber of Commerce President Tom Donohue said, “Let me be forceful and direct. There are several poison pill proposals still on the table that could doom the entire deal . . . If the administration issued a withdrawal order, which requires a six-month waiting period, it would not be viewed by our partners in Canada and Mexico as a negotiating tactic. Instead, it would abruptly slam the door on future negotiations because those governments have made it very clear that they won’t negotiate with a gun to their head.”
• On October 10, Mexican Foreign Minister Luis Videgaray testified to the Mexican Senate that “we always have to be ready to get up from the table. This is a logical position in any negotiation. It’s also a principle of dignity and sovereignty . . . Mexico is much bigger than NAFTA and we have to be ready for any scenario in the negotiations.”
• On October 10, Canadian Minister of Foreign Affairs Chrystia Freeland said, “What we’d like to do with NAFTA is to modernize it. This is a 23-year old agreement and the economy has moved on.” She added, “I think that this is probably the most uncertain moment in international relations since the end of the Second World War.” 

What are the sticking points?

• U.S. Trade Representative Lighthizer said the United States would “hopefully” present draft text by the next round on the complex issue of rules of origin, which outlines how much of a product (such as cars) needs to originate in a NAFTA country.
• The U.S. also plans on presenting its stance on the dispute settlement mechanism, also called Chapter 19, in the next round. This is tricky because the U.S. desire to eliminate Chapter 19 is deeply opposed by Mexico and Canada.
• The U.S. is considering a proposal to introduce a “sunset clause” that would mean that the U.S., Canada and Mexico would have to recommit to the agreement every five years, or the agreement would expire.
• The U.S. may also present a proposal to eliminate preferential tariffs on textiles from Canada and Mexico in the fourth round – this was vigorously criticized by officials from the other two countries.
• After the third round, Canada declared that the American side’s failure to present specific language on major goals such as rules of origin was holding back progress.
• Canada is continuing to press for new language on gender rights and climate change.
• Mexico has also continued pushing back on the U.S. position regarding the need to lower the $55 billion trade deficit with the Mexico, warning that it would unleash a wave of protectionism.

What’s next?

The next negotiating session will take place in Washington from Oct. 11-15^th and the U.S. has said that it is prepared to tackle difficult topics such as the rules of origin issue and dispute settlement mechanism. Canadian Prime Minister Justin Trudeau meets with President Trump on October 11 to discuss the NAFTA negotiations before making his first official visit to Mexico on October 12 and 13 to discuss trade issues with Mexican President Enrique Pena Nieto. With the outcome uncertain, observers believe that the clock is now ticking in earnest on whether the current NAFTA negotiations are viable.

September 2017

By Sally A. Painter and Mathilde Defarges with Jeremiah J. Baronberg

This article was published by the Foreign Policy Association.

This is a critical time for the United States, Europe, and the transatlantic partnership.

On both sides of the Atlantic, societies are revolting against policy elites. Nationalism, identity, and sovereignty are the order of the day. Protectionist and isolationist sentiment and threats of trade wars are common headlines. Calls for a “pullback” from globalization echo across both our shores.

What’s at stake? Doubts about the future of globalization.

In the United States, Donald Trump campaigned explicitly against elites, running as a Washington-outsider bent on upsetting the establishment status quo and reshaping America’s approach to international economic affairs. With its professed “America First” orientation, foreign policy under the Trump administration has been marked by withdrawal from multilateral trade negotiations such as the Trans-Pacific Partnership and the President shows no interest in pursuing TPP’s proposed companion trade agreement between the United States and Europe. Similar debates have emerged about the role of the United States in global affairs across a host of security, environmental, and economic positions and platforms.

Likewise, in France, a second round run-off was required for newcomer Emmanuel Macron to emerge victorious over far-right National Front leader Marine Le Pen in the presidential election that relegated the two main traditional parties to an afterthought. Mr. Macron’s victory was achieved against all odds without the support of a political party or a detailed disclosure of his proposed policy programs. In the aftermath of the French election, anti-globalization forces continue to loom large with strong support from both the far left and far right opposition parties.

Globally, citizens and governments alike have responded to the recent economic crisis and the much promoted “the world is flat” theory in their own ways; witness Brexit, Euroscepticism, Trump, border closings, restrictions to migration, trade, and capital flows. Questioning longstanding alliance commitments is also part of this equation. Both sides of the Atlantic appear to be undergoing a period of palpable uncertainty and mistrust.

While the United States shows signs of going through an identity crisis, Europe too is experiencing one of its own, in which it does not seem to know if it wants more America, or less. This uncertain climate has inevitably led to unpredictability in the business world, particularly for firms operating on a global scale which must navigate among a complex mix of government policies and multilateral oversight bodies, as well as scrutiny and activism by civil society.

What is our strategy? To help our clients smartly navigate a new era of globalization through conscientious local engagement.

Amidst such uncertainty and instability, neither protectionism nor the flat world approach is capable of fostering what we believe is really needed: a virtuous circle that offers the promise of sustainable business profits and social and economic inclusion. The world of today – and of tomorrow – is much too complex to ignore either. The approach going forward must account for both the global and the local.

With our shared history, democratic values, and traditional political-military alliance, the United States and France have a unique opportunity to show this way forward, particularly in the field of economic relations and private sector investment. Over 4,800 French companies maintain subsidiaries in America, accounting for over 590,000 high-paying jobs, making France the 5th largest foreign employer in the United States. American companies generate over 400,000 jobs through their roughly 4,600 local affiliates in France, ranking them near the top of job-creating foreign investors and accounting for 12 percent of total U.S. foreign direct investment worldwide. Kicked off in 2014, the U.S.-France Economic-Commercial Dialogue has provided an important forum – which should be strengthened – for supporting a deepening of these opportunities.

Globalization can only work if supported by civil society.

For this approach to thrive, our mission as strategists and consultants is to help French and American businesses and organizations adapt smartly to the current challenging political-economic landscape by engaging meaningfully with, and across, multiple levels of society. First and foremost, this means that firms must be highly attuned to and capable of responding to differences across countries. They must craft thoughtful governmental and societal agendas that communicate – and deliver – tangible benefit to the local societies in the countries in which they exist. At a basic level, companies must treat their interactions with governments, media, and the public, not only as a priority, but as a core element of their business strategies.

Trade and Investment must be designed as a way to share our best practices and maintain high standards.

Finally, while a globalized and interconnected world is here to stay, today’s multiplicity of voices and actors are demanding a more sustainable and accountable approach to the world economy’s development and management. In this way, global businesses can be effective advocates for international trade and investment that increases transparency and accountability, raises standards, and enshrines human rights practices.

As transatlantic partners in business and investment, we want to lead and work with our clients and partners to achieve this future.

September 2017

By Daniel P. Erikson

As Hurricane Irma completes its destructive march through Florida and the southeastern United States, we must remember that the small island nations of the Caribbean have also been left to contend with extensive damage to infrastructure, thousands of newly homeless, and dozens of deaths. 

Hurricane Irma struck the tiny twin island nation of Antigua and Barbuda as a peak-strength Category 5 storm and Prime Minister Gaston Browne estimated that 95 percent of the properties on the smaller island of Barbuda were destroyed. Irma then raked across the U.K. territories of Anguilla, British Virgin Islands, and Turks and Caicos, and the French territories of St. Bart’s, Guadeloupe, and St. Martin (which shares the island with the Dutch territory of St. Maarten). Cuba also suffered as the storm swept across its northern coast and ravaged the third largest city of Camaguey. The U.S. territories of Puerto Rico and the U.S. Virgin Islands were also badly affected before the storm moved on towards the Florida Keys and then the mainland United States.

While the damage is still being assessed, it is already clear that the lives of thousands of people who live on these islands will never be the same and that property damage will extend into the billions. Some of the smaller, remote islands may be uninhabitable for weeks to come. French President Emmanuel Macron and the King of the Netherlands will travel to the region to show solidarity with their afflicted citizens in the region. Once the challenges of treating the injured and assisting with basic human needs are met, much of the early reconstruction effort is likely to focus on rebuilding tourist infrastructure. This will be necessary, but not sufficient, to create a full recovery. 

Expanding the competitiveness of the Caribbean service sector beyond tourism is a way to draw on regional strengths and broaden the basis for economic growth. Caribbean leaders have increasingly recognized that developing globally competitive services industries offers one way to retain high-skilled workers and mitigate the risk of external shocks to the tourist sector.

Several years ago, the Centre for International Governance and Innovation based in Waterloo, Canada, asked me to assess what steps the Caribbean islands could take to diversify their economies away from an over-reliance on tourism to create a more sustainable future. Then, as now, a series of powerful storms had severely impacted these vulnerable islands: Hurricane Ivan in 2004, Hurricanes Dean and Felix in 2007, and Hurricane Ike in 2008. The results of that study, “Beyond Tourism: The Future of the Service Industry in the Caribbean,” contain lessons that remain relevant today.

Hurricane Irma reminds us once again that the Caribbean remains extraordinarily vulnerable to natural disasters – especially their lucrative tourist sectors. Against this backdrop, the services sector in the Caribbean may serve as an important source of economic growth, but only if the region begins to move beyond tourism to take advantage of opportunities in banking and financial services, call centers and information and communication technology, off-shore education and health services, and transportation.

Hurricane Irma has dealt a tragic and costly blow to the Caribbean. Rebuilding a stronger and more diversified service sector may offer one path towards a sustainable and much deserved recovery for the people of the region.

September 2017

By Jeremiah J. Baronberg

After new presidential elections in the United States, incoming U.S. administrations make numerous changes to key personnel across the federal government. These include the president's political appointment of thousands of high ranking officials to serve in a host of policy and strategy positions to implement the new administration's agenda.

For the new Trump administration, the pace of nominations has been decidedly slower when compared to previous changes in administrations, with the fewest nominations in 40 years. Of the more than 1,100 positions requiring confirmation, President Trump has nominated only 277, according to the nonprofit nonpartisan organization that assists in federal government transitions. Of those 277 appointments, less than half have been confirmed by the Senate.

One area where President Trump has outpaced his predecessors is on nominations of federal judges and U.S. attorneys for states across the country, which serve as the top federal prosecutor and the government's chief civil lawyer in their district. Mr. Trump has also announced candidates to serve as Comptroller of the Currency, the top regulator of national banks, and the Vice Chair of Supervision at the Federal Reserve, both of which are expected to play key roles in the president's agenda to reshape the U.S. financial regulatory system.

Following the August Congressional recess, the Trump administration announced 42 new appointments, including nominees for positions in the Departments of Justice, Agriculture, and Defense, executive agencies such as NASA, and key White House officials.

When it comes to implementing the administration's foreign policy, President Trump recently named candidates for ambassadors to countries such as Germany, India, Croatia, Estonia, and Switzerland. However, U.S. envoys to other countries such as Argentina, Australia, Austria, Cuba, Egypt, Finland, Ireland, Jordan, Norway, Qatar, Saudi Arabia, South Korea, Sweden, and Turkey and to international representative bodies such as the EU, OAS, OECD, OSCE, and UNESCO are still awaiting nominations.

Among Cabinet-level departments, just 20 percent of nominated positions are now filled, with agencies such as the Departments of Energy, Agriculture, and Labor at less than 10 percent. At the Department of State, only 46 nominations have been submitted for 131 appointees. Notably, neither the State Department nor the Department of Defense has an assistant secretary for Asian and Pacific affairs, which are seen as vital posts considering the current tension in that region.

The following are among the more high profile posts that have been recently nominated by President Trump:

Department of Justice

Solicitor General—Noel Francisco

Antitrust Division, Assistant Attorney General—Makan Delrahim

Civil Rights Division, Assistant Attorney General—Eric Dreiband

Criminal Division, Assistant Attorney General—Brian Benczkowski

National Security Division, Assistant Attorney General—John C. Demers 

Executive Branch

General Services Administration, Administrator—Emily Webster Murphy

Environmental Protection Agency, General Counsel—Matthew Z. Leopold

Department of Agriculture, General Counsel—Stephen Alexander Vaden

Comptroller of the Currency—Joseph Otting

Federal Reserve, Vice Chairman of Supervision—Randal Quarles

Department of Transportation, Federal Highway Administration, Administrator—Paul Trombino III

White House, National Drug Control Policy, Director—Representative Tom Marino

NASA, Administrator—Representative James Bridenstine

Department of Commerce, Under Secretary of Commerce for Intellectual Property; and Director of the United States Patent and Trademark Office—Andrei Iancu

Department of State

Legal Adviser—Jennifer Gillian Newstead

Assistant Secretary of State, Economic and Business Affairs—Manisha Singh

Ambassador to NATO—Kay Bailey Hutchison

Ambassador to Afghanistan—John R. Bass

Ambassador to Croatia—W. Robert Kohorst

Ambassador to Denmark—Carla Sands

Ambassador to Estonia—Admiral Edward Masso

Ambassador to France and Monaco—Jamie McCourt

Ambassador to Germany—Richard Grenell

Ambassador to Haiti—Michele Jeanne Sison

Ambassador to India—Kenneth Ian Juster

Ambassador to Russia—Jon Huntsman Jr.

Ambassador to Spain and Andorra—Richard Duke Buchan III

Ambassador to the Swiss Confederation and to Liechtenstein—Edward T. McMullen, Jr.

September 2017

By Daniel P. Erikson and Gabriella Ippolito

As part of our renewed focus on the Western Hemisphere, the Blue Star Brief is pleased to introduce “Spotlight on NAFTA,” a feature that will track what is occurring behind the headlines as the United States, Canada, and Mexico try to complete negotiations by the end of 2017.

The North American Free Trade Agreement (NAFTA) has been in the cross-hairs throughout the U.S. presidential campaign in 2016 and during the first eight months of the Trump administration as the three countries grapple with whether to amend, renegotiate, or terminate the world’s largest free trade area linking 444 million people producing $17 trillion in goods and services.

What is happening?

• Three-way negotiations have been launched and are continuing at an intensive pace. The first round occurred in Washington, DC on August 16-20, followed by a second round in Mexico City on September 1-5. The third round is scheduled to take place in Ottawa in late September.

What are people saying?

• On August 22, President Trump cast doubts on the negotiations after the first round, saying, “Personally, I don’t think we can make a deal…I think we’ll end up probably terminating NAFTA at some point.”
• On August 30, Mexican Foreign Minister Luis Videgaray said that “we don’t believe it would be a correct route or a viable route to rescind the treaty just as we’re in a process of renegotiation.” Meanwhile, populist presidential candidate Andres Manuel Lopez Obrador called for the talks to be “suspended” until after Mexico’s 2018 elections.
• On September 5, negotiators from the U.S., Canada, and Mexico released a joint statement, saying that “important progress was achieved in many disciplines and the Parties expect more in the coming weeks.” 

What are the sticking points?

• The United States seeks to modernize NAFTA to address America’s persistent trade imbalances in North America – especially the bilateral trade deficit with Mexico.
• Canada is pushing for higher labor standards, including a provision which calls for gender equality in the workforce, as well as a new environmental provision that would prevent a country from intentionally weakening climate-change policies to attract investment.
• Mexico wants the U.S. to move off of its absolutist positions on the trade deficit while wrapping up the negotiations quickly so they do not get bogged down in the 2018 presidential elections.

What’s next?

• Negotiators are heading to Ottawa for September 23-27 for the third round of talks. Stay tuned.

July 2017

By Daniel P. Erikson

Ever since the era of the historic liberator Simon Bolivar, Latin America has been searching for successful regional integration models, with mixed results. That is why the quiet success of the once obscure but newly influential Latin American trade bloc called the “Pacific Alliance” has attracted increasing attention since it was first launched in 2011 by Mexico, Chile, Colombia, and Peru.

Rather than subscribe to grandiose schemes of continental integration, or deeper political union, these pragmatic, trade-friendly countries instead focused on nuts-and-bolts issues like harmonizing existing free trade agreements, lowering tariffs, and eliminating visa requirements. This results-oriented approach, coupled with frequent presidential summitry, soon attracted wide interest, with eventually more than fifty countries (including both China and the United States) signing on as observers. Some analysts are predicting a new core group that can help to advance the aspirations of the currently defunct Trans-Pacific Partnership. 

Last month, Colombian President Juan Manuel Santos hosted the 12^th Pacific Alliance Summit on June 29 and 30 in Cali, Colombia, joined by his counterparts President Michelle Bachelet of Chile, President Pedro Pablo Kucynzki of Peru, and President Enrique Pena Nieto of Mexico. The combined population of the four Pacific Alliance countries totals 225 million people, and they collectively represent the world’s eighth largest economy and nearly 40 percent of the GDP of Latin America and the Caribbean. The four nations within the Pacific Alliance have already established a free trade framework, enhanced labor mobility, and are considering the development of a common passport.

The June summit was especially notable, however, because the presidents carved out a new membership category of “associate member states” that will allow them to more proactively engage with observers who are ready to get off the sidelines and begin to strike trade deals with the Pacific Alliance as a group. The first four associate members will be Canada, Singapore, Australia and New Zealand, but more are sure to follow. President Santos described the move as a way to create a new level of synergy with observers that will enable them to “affiliate in some way with the four countries that have the most dynamic economies in Latin America.” President Bachelet underscored her desire to serve the purpose of “consolidating and expanding integration as an instrument of economic development.” Australia and New Zealand, for their part, wasted no time in moving ahead; on July 7, Australia and New Zealand announced their intention to pursue free trade talks with the Pacific Alliance bloc of nations.

With this step, the Pacific Alliance has moved beyond its status as a Latin American novelty and towards becoming a potentially much more influential trade bloc, with its expansion driven in part by the uncertainties surrounding TPP and NAFTA. This new paradigm of trade agreements represented by the Pacific Alliance may have its limits, but for the moment the future is full of growth opportunities.

July 2017

By James Le Grice

This article is a contribution from our UK network partner firm Four Communications based in London.

After ISIS, it’s back to the old battles

Nearly three years to the day that Abu Bakr al Baghdadi declared his caliphate in Mosul, the Iraqi flag flies again over Iraq’s second largest city. The hard-fought battle is the biggest victory yet over ISIS, and with the group losing ground in Syria, the end is approaching for Baghdadi’s caliphate. So too is the end approaching for the unlikely alliances fighting against it.

In ISIS, old enemies found a common opponent; yet the causes of their differences have only increased during the war. As the threat of ISIS wanes, these legacy conflicts will rise back to the surface heralding major changes to the regional balance of power.

The Shia Jihad

The greatest challenge comes from Iranian-sponsored Shia jihadists who have gained unprecedented power in the war against ISIS. The Iraqi and Syrian governments grew reliant on them to reclaim territory from ISIS, and as a result a ‘Shia Crescent’ is forming creating a land bridge from Iran to the Israeli border via northern Iraq and Syria.

Shia militias are a historic cause of instability in Iraq. During the Iran-Iraq War, Iran created various paramilitary groups to export its revolution to Iraq through subversion and terrorist activity. The involvement of these militias in the 1991 uprising against Saddam Hussein is partly responsible for the uprising’s failure. Fearing revenge killings and tyranny under militia rule, Iraqis in Sunni heartlands such as Fallujah, Ramadi and Mosul rallied behind Saddam as the lesser of two evils.

Many of their fears came true post 2003, as the lines blurred between extremist Shia militias and a government dominated by moderate Shia Islamists. The pattern of 1991 repeated itself in the exact same places, as al Qaeda and later ISIS gathered reluctant support amongst Sunnis as the perceived lesser evil.

Sunni apprehensions are best exemplified in the career of Hadi al Amiri, leader of the Badr Brigades, the most prominent of Iraq’s Shia militias. After Saddam’s overthrow, his militia ran death squads which killed thousands of Sunnis and Amiri became internationally notorious his signature method of killing: execution by power drill. Rather than bringing Amiri before a war crimes tribunal, Prime Minister Nouri al Maliki made him Minister for Transport, a role he allegedly used to help Iran transport weapons into Syria. He has grown even more powerful under current Prime Minister Haider al Abadi, who placed him in charge of anti ISIS military operations in Diyala Province. Indeed, Abadi has increased the power of all the Shia militias, legalising them as extensions of the state and entitling them to public funding.

In Syria, where the regime has been a long-time supporter of Iran’s proxy militias, the patron has become the client. The Assad regime is being propped up on the ground by Hezbollah and a variety of Shia militias organised by Iran’s Quds Force. Iran has recruited militiamen from as far away as Afghanistan, Pakistan, and Yemen, creating demographic changes in Syria to shore up its power base.

While these militias are supporting Assad, their outlook is distinctly religious. They have come to defend the Shia shrine of Sayeda Zeinab in Damascus, and to defend Islam from what Iranian propaganda claims is an American/Israeli/Saudi plot to divide and weaken the ‘Islamic resistance’ through ISIS and other Salafists.

In both Syria and Iraq, the Shia militias have been accused of sectarian cleansing and mass killings during the war on ISIS. It is unlikely that they will be disarmed or brought to justice after the war, raising the risk of Sunnis in both countries continuing to turn to Salafist groups for protection.

Kurdistan

The war on ISIS has made the prospect of an independent Kurdish state more tangible than ever before. Iraqi Kurds were always closest to achieving this, having enjoyed autonomy for some time. However the borders of the Kurdistan region remain contentious, and exclude a number of mixed Kurdish and Arab settlements on their periphery. The war against ISIS created an opportunity to expand the borders as Iraqi security forces collapsed in the face of ISIS’ 2014 blitzkrieg.

Most notably, the Kurds seized the oil-rich city of Kirkuk, a traditionally Kurdish city that has long been the subject of contention between the Kurdistan Regional Government and Baghdad. The Kurds have no intention of handing it back once ISIS is fully defeated.

Knowing that the time was right to consolidate these gains, the Kurdistan Region’s President Masoud Barzani has called for an independence referendum on 25^th September. This will allow him to seek international recognition of Kurdistan within its new borders.

In Syria, the collapse of regime authority in Kurdish majority areas has enabled a quasi-independent Kurdistan to take shape. The Rojava ‘republic’ set up by the Democratic Union Party (PYD), an offshoot of the radical Turkish Kurdistan Workers Party (PKK), is a bold experiment in direct democracy, gender equality and religious freedom.

Rojava gained global attention when its forces won the first major victory in the war against ISIS, driving the group from Kobani, near the Turkish border. Backed by US support, the Syrian Kurds have gone on to reclaim further territory from ISIS in northern Syria, cutting off the group’s key supply routes and consolidating the Kurdish majority areas of Syria.

This has not sat well with Turkey, which considers Rojava’s YPG forces to be terrorists and a greater threat to its security than ISIS. Rojava’s rise prompted Turkish military intervention in Syria, nominally to fight ISIS, but largely to thwart the creation of an independent Kurdish state on its southern border. The Turkish army, and the Syrian groups it supports, have had numerous small-scale clashes with the YPG. Once their common enemy in ISIS is defeated, these clashes could escalate dramatically.

The Syrian Democratic Revolution

The war on ISIS has provided the Assad regime with a convenient distraction from the country’s democratic revolution. Assad’s line from the beginning was that he was fighting ‘terrorists’ and early on he released hundreds of jihadists from prison to ensure he’d get the fight he wanted.

The rise of ISIS led Western powers to soften their rhetoric on Assad stepping down, and the regime and its Russian supporters have continued to crush moderate rebel forces under the banner of ‘fighting ISIS’. The democratic movement has suffered severe losses at the hands of the regime and Islamists alike, but it is not defeated.

The US-led coalition has continued to support the Free Syrian Army and the Syrian Democratic Forces as its ground force against ISIS in Syria. However, the question now is how far the US is willing to go to support these forces after ISIS’ defeat. Recent confrontations between Syrian planes threatening US-backed groups and the US air force are testing this. Assad is gambling that the US is unwilling to risk a major confrontation to protect them, and that is a safe bet. Supporting the revolution against Assad now means challenging Russia and that has changed the calculus. Putin’s bid to become a prominent Middle East power broker is looking set to pay off.

For these reasons, it’s vital that Western policy makers have a clear vision for the post-ISIS Iraq and Syria, acknowledging the resources and potential sacrifices necessary to achieve it. Iran’s Shia jihad at the least will fuel continued sectarian conflict, providing a recruiting tool for al Qaeda and other Sunni Islamists, potentially with tacit backing from rival powers. At worst, it will create a dynamic in which a hardline anti-Western force is powerful enough to dictate the future of both Iraq and Syria. An independent Kurdistan in Syria and/or Iraq would place the West in an awkward position of having to choose between allies, and would have domino effects in Turkey and Iran where Kurdish nationalists have renewed their armed insurgencies. If the Syrian democratic movement is abandoned, the West will effectively confirm Syria as a Russian sphere of influence, though continued support for the movement could prove far too costly.

In the fight against ISIS, it has been all too easy to put these issues aside, but as fractious alliances of convenience break down it will soon be decision time.