15 November 2009 - Summary of the meeting of the Economic and Security Committee

I.          Opening Remarks 

1.        The Chairman, Hugh Bayley (UK ), declared the committee open and welcomed the members and speakers. He gave special thanks to the staff from the British Parliament for making the meeting possible and introduced the day’s proceedings.

The draft Agenda [157 ESC 09 E] and the summary of the meeting held in Oslo  , Norway, on Saturday 23 May 2009 [137 ESC 09 E] were adopted without comment.

The Chairman then explained the procedure for submitting amendments to the draft Resolution on Moving Beyond the Global Economic Crisis [211 ESC 09 E].

II.       Presentation by Dr James Sumberg, Research Fellow, Institute of Development Studies, University of Sussex, Brighton, on Food Shocks and Food Security in Sub‑Saharan Africa: Debates, Policies, Opportunities and Challenges

2.        James Sumberg began by saying that he would build his presentation upon the report of the Sub-Committee on Transatlantic Economic Relations, which he praised as a detailed, thorough, and balanced analysis. The speaker highlighted that even before the food price spikes of 2008, there were over 800 million hungry people in the world – a reality that posed both moral and global security challenges to policymakers.  Dr Sumberg emphasized that this was not only a problem for developing countries: global agricultural markets are congenitally distorted and protected, while millions of farmers are starved of the capital needed to increase productivity.  Dr Sumberg then focused on Sub-Saharan Africa – a region where chronic food insecurity seems to be an especially stubborn problem.

3.        The speaker reviewed the central debates in the literature as to why this was the case: debates covering farm size; whether global competition was desirable; whether export or subsistence crops should be grown; the extent to which technological development should be embraced; and whether agricultural transformation could help foster economic growth. He expressed his strong opinion that all of the debates were relevant. Flexible “contextual” approaches to agricultural and rural development were essential to Sub-Saharan Africa because of the heterogeneity of the region. There are no blueprint approaches that could be broadly transferable there.

4.        Dr Sumberg noted the perennial attraction of “silver bullet” solutions.  What is needed is a more nuanced approach to rural development that gives a key role to local policymakers. Thus, their skills and capacities would need to be built up. The speaker concluded by explaining that more information is needed on the effects of local policy processes on agricultural productivity.

5.        In the discussion, the importance of the cross-border transfer of expertise in Africa was touched upon, as well as the largely unknown but potentially serious impact of biofuel production on water and energy supplies for African cities.  Responding to a question regarding irrigation and informal farming, Dr Sumberg stated that the benefits of farm size were not always apparent in Sub-Saharan Africa.  It was agreed that more needed to be done to facilitate the cross border transit for perishable foods in the region, including the reduction of border controls.

6.        Dr Sumberg acknowledged that there was a compartmentalization in the academic community, whereby agriculturalist researchers were less aware of the extent to which food security was a ‘hard’ security issue, but he added that there was a trend towards righting this.  It was agreed that hard security and food security were profoundly intertwined in states such as Somalia.  As for the role played by land access in agricultural productivity, Dr Sumberg noted that this was increasingly taking centre stage, but that systems of private title do not necessarily constitute a solution to the problem.

7.        The speaker suggested that crises can provoke opportunity, but felt that the moment had almost passed for the food crisis to spark meaningful change. When asked about the African Union’s NEPAD (New Partnership for Africa 's Development) programme, Dr Sumberg expressed fears that the drive for policy coherence would lead to a sub-optimal, one-size-fits-all solution. In discussing the theoretical distinction between subsistence and commercial farming, the speaker said that research has shown that even the smallest farmers sell some of their produce, before arguing that aid effectiveness to Africa could be improved by better making the link between farming and the context of individuals.

III.       Presentation by Dr Adrian Kendry, Senior Defence Economist, Political Affairs and Security Policy Division, NATO, on Allied Defence Budgets in Light of the Global Economic Crisis

8.        Adrian Kendry started by highlighting that the global financial crisis was deep, and of uncertain duration.  Although the IMF had recently revised upwards its forecast for global economic growth in 2009-2010, rising unemployment, business fragility and uncertain trade prospects continue to cloud the economic horizon. There are likely to be large disparities in growth over the next several years, with non-NATO nations such as China and India recovering faster than Europe or the United States. 

9.        Reviewing the defence expenditures of NATO countries, Dr Kendry stated that the economic crisis would likely have a markedly negative impact on defence budgets throughout the Alliance, many of which were already below the 2% target for defence spending in NATO countries. Additionally, he highlighted the trend for governments to spend a greater proportion of their defence budgets domestically, which was not the most cost-effective way of providing the modern capabilities needed by the Alliance. The speaker stated that, whilst North America assumed 66% of the spending burden in 2008, this was likely to jump to an estimated 73% in 2009.  He added that while Europe spends some 60% of the US defence budget, it only derived around 20% of the effectiveness of the United States due to the fragmentation of European defence markets.  Most notably, Dr Kendry highlighted that the United States spends more than five times more than Europe on defence research and development.

10.      In light of the above, the speaker suggested that the challenge for European NATO members was to increase the utility and effectiveness of their proportionally large personnel expenditures in the armed forces, whilst the United States had to balance its expenditures between equipment replacement and the acquisition of new systems. Drawing attention to Article 2 of the North Atlantic Treaty – to “eliminate conflict in international economic policies” – Dr Kendry concluded by calling for a greater number of commonly funded and multilateral programmes to mitigate pressure on national defence budgets.

11.      In the discussion, the speaker drew attention to Sweden as a model for a small country with effective industrial consolidation in its national defence sector.  He pointed out that China ’s already considerable defence budget was even more formidable when purchasing power parity was taken into account, and conceded that the effectiveness of the national defence expenditures of NATO members could not be easily captured in the figures he presented. In this vein, the discussion raised the further methodological point of whether development aid shouldn’t be included in coming to conclusions about burden sharing.

12.      The second half of the discussion centred on the stark imbalance in transatlantic defence expenditures.  Dr Kendry saw no signs of a reversal in current trends. He did, however, praise Canada ’s role in maintaining its levels of defence spending.  “We cannot continue with the way things are now” he said in reference to the defence contribution disparity amongst NATO nations.  In conclusion, the Chairman added that the United States will probably face more pressure to reduce its defence budget than European Allies in the medium term.  He wondered whether European spending could be increased to meet the shortfall, in particular in NATO operations.

IV.      Consideration of the draft Report of the Sub-Committee on East-West Economic Co‑operation and Convergence on Central Asian Energy Production: Potential Contributions to Transatlantic Energy Security [177 ESCEW 09 E] by Attila Mesterházy (Hungary), Rapporteur

13.      The Rapporteur, Attila Mesterházy (HU)   began his presentation by reviewing the security dilemmas posed by high energy prices in Europe.  He stated that whereas a full and permanent interruption of supplies aimed at Western states was highly unlikely, Russia had cut off the energy supply of Eastern European states on more than 50 previous occasions. It was unlikely that these interruptions were due to technical problems, as often claimed.  In light of this, Mr Mesterházy said that there was a pressing need for Europe to diversify its energy sources, improve its capacity for energy conservation, and upgrade its energy infrastructure.

14.      The Rapporteur then turned to Central Asia, saying that the region’s geo-strategic location and energy resources have made it the object of much attention since the end of the Cold War.  Mr Mesterházy made it clear that although NATO did not want to undermine the importance of the Shanghai Cooperation Organisation (SCO) and Collective Security Treaty Organisation (CSTO) in the region, the Alliance did want to improve the security landscape through such means as the support of defence reforms and disaster management.  Addressing the security challenges faced, the Rapporteur touched on the lack of international water sharing agreements, the region’s unresolved borders, drug trafficking, a generally high fiscal dependence on energy exports, the slow growth of civil society, and the acute environmental problems inherited from the USSR.

15.      Mr Mesterházy said that Central Asia held large reserves of gas that could be brought to Europe by pipelines that bypassed Russia.   However, Russia had sought to control the supply and transit of Central Asian gas through various means. China, too, has emerged as a major resource competitor in the region. In light of the intensifying geopolitical competition and the region’s existing security challenges, the Rapporteur concluded by emphasizing that the region offers but one of several alternatives for strengthening European energy security.  Although Europe should help to develop Central Asia’s potential, it could undermine its interests and marginalize Central Asia if it viewed the region purely in terms of the energy it offered.

16.      Following the presentation, a representative from Kazakhstan highlighted what he felt were several errors in the report, including the insufficient differentiation made between the various Central Asian states.  He downplayed the extent to which Kazakhstan had been affected by ethnic strife and the global financial crisis, and requested that the Rapporteur strike reference to the productivity of the Karachaganak gas field in his draft report.  The Rapporteur responded by expressing his regret that a more detailed analysis of the Central Asian states was not possible within the space of his report on energy security, and invited the representative to submit written corrections.

17.      The discussion then turned to a comparison of the Nabucco and South Stream pipeline routes, with the Rapporteur explaining that while South Stream would allow Europe to bypass non‑EU transit countries, Nabucco would allow Europe to diversify the sources of its gas away from Russia.  China ’s role as an energy competitor, and Turkey ’s role as an energy transit partner were touched upon, with the Rapporteur making special mention of the latter’s pragmatism during the latest round of Nabucco negotiations. 

18.      A representative from Russia drew the Committee’s attention to a recent agreement between Slovenia further paving the way for the South Stream pipeline. He stressed Russia ’s commitment to supplying Europe in the future.  Although he welcomed Nabucco, he questioned whether it would ever become a reality.  The Rapporteur answered that he was a little more optimistic on the future on Nabucco, and that he approved of the diversification of Europe ’s energy supplies, including the South and Nord Stream pipelines.

V.       Summary of the future activities of the Sub-Committee on East-West Economic Co‑operation and Convergence, by Kurt Bodewig (Germany ), Chairman of the Sub‑Committee

19.      Kurt Bodewig (DE) reviewed the Sub-Committee’s successful and informative visit to Kazakhstan in June, and mentioned that the Sub-Committee would travel to Algeria from 22‑25 November – a visit that would engage members of the Mediterranean and Middle East Special Group.  He thanked his Algerian colleagues for helping to put the schedule together, before moving on to the planned report for next year, tentatively covering the impact of the global financial crisis on Central and Eastern Europe.  Planned trips to Bulgaria in April and Prague in June were mentioned, although Mr Bodewig stated that their details remain to be confirmed. Finally, Mr Bodewig said that he would be leaving the Sub-Committee, as he was not seeking re-election in the German Bundestag.  He said that it was a great pleasure serving the Committee, and wished it the best of luck in its work.

VI.      Summary of the future activities of the Sub-Committee on Transatlantic Economic Relations, by John Sewel (United Kingdom ), Chairman of the Sub-Committee

20.      John Sewel (UK )reviewed the activities of his Sub-Committee in the past months.  He thanked the members of the US delegation, as well as the Cross Aisle Group, for hosting a dinner during the Sub-Committee’s very productive visit to Washington D.C. in spring.  He also gave thanks to the Canadian delegation for putting together an excellent visit to Ottawa, and Senator di Gregorio and the Italian Senate staff for organizing so many interesting meetings during the Sub‑Committee’s visit to Rome, La Spezia, and Milan in October.  Turning to the future, John Sewel tentatively spoke of visits to India in October 2010, Sweden in September, and possibly also Turkey at some point next year.

VIII.    Discussion on The Assembly’s Contribution to the Development of a New Strategic Concept [Documents referred to: Procedure for Finalizing the Assembly’s Contribution (200 SC 09 E) and Draft Text of the Assembly’s Contribution to a New NATO Strategic Concept (201 SC 09 E)]

21.      Sven Mikser (EE), the Assembly’s representative for NATO’s New Strategic Concept, started by saying that the Alliance is currently in the process of debating the concept’s contents in a series of seminars.  This will be followed by a tour of national capitals to ‘sound out’ the proposals.  The Assembly’s role in this process is parallel to the activities of the Group of Experts, of which it is a member.  The Assembly will hand its recommendations to the Secretary General of NATO in March.  A few key points the Assembly will recommend include a reaffirmation of Article 5; a recommendation that the Alliance match its capabilities to its operations; and a recommendation that the Alliance consider new threats to security including cyber, maritime, and energy security, and possibly even climate change.  Partnerships with new nations and organizations will be essential to address these new threats to security.

22.      Mr Mikser stated that the Alliance should additionally reaffirm its commitment to Article 2 – to contribute toward the further development of peaceful and friendly international relations by strengthening Alliance members’ free institutions – and should bring about a better understanding of the principles upon which these institutions are founded by improving its public relations efforts.  Mr Mikser also stated that the Assembly would press the Alliance to reaffirm its commitment to political solidarity, including over energy issues, in parallel with the EU. New partnerships should be developed with nations that wish to become NATO members, as well as with nations that do not necessarily wish to take the final step of NATO membership. The Strategic Concept, he suggested, must be accessible to our publics.

23.      Committee members emphasized that the New Strategic Concept consider the current crisis in public finance and indicated that the document be “dynamic” and “self-adaptive”.  As well as calls for a general statement on burden sharing in the New Strategic Concept from a number of members, representatives also questioned whether the Assembly’s tentative recommendations put NATO at the centre of too many processes which could be better addressed by other organizations.  Energy security, in particular, was raised as a point on which the EU might have greater competencies – especially in light of the Lisbon Treaty.  Mr Mikser responded to these points by stating that a comprehensive approach was necessary for addressing certain security threats. However, he agreed that other organizations do have competences on certain issue areas.  He agreed that the relationship with the EU held a special place.

24.      The discussion then turned to the Atlantic Treaty, and whether it was still capable of addressing the new threats facing the Alliance.  One member wondered whether a New Strategic Concept would be able to overcome the Treaty’s perceived fundamental inadequacies on new issues such as cyber defence, where neither Articles 4 nor 5 properly cover the immediate and binding response necessary.  In light of this, perhaps the Alliance should explore the possibility of a new treaty to better match new threats.  Although Mr Mikser admitted that Articles 2 and 4 may need to be re-examined, he stated that the question of whether the Washington Treaty would be updated was, strictly speaking, beyond the confines of the current discussion.  In conclusion, the Chairman requested that the NATO PA state its view that NATO keep the Assembly informed of major changes in strategy in order that parliamentarians have a say.

VIII.    Consideration of the draft Report of the Sub-Committee on Transatlantic Economic Relations, Food Price Shocks and their Implications for Food Security [176 ESCTER 09 E] by Petras Austrevicius (Lithuania ), Rapporteur

25. The Rapporteur, Petras Austrevicius (LT) began his presentation by highlighting that food prices have remained high during the economic downturn, while credit shortages have made it difficult for farmers to bolster production.  The Rapporteur postulated that the return to global economic growth and rise in energy prices likely to accompany this would only precipitate further increases in the price of food.  Given that agriculture provides the livelihood for around 70% of the world’s poor, the humanitarian consequences of continued food insecurity were grave.

26.      Mr Austrevicius highlighted that agricultural trade is currently mired in protectionism and regulation, a characteristic exacerbated by ill-advised policies pursued by some governments in the wake of the food crisis.  On the acute link between energy and agricultural markets, the increasing demand for biofuel has also contributed to food price inflation, a trend the United Nations Food and Agriculture Organization believes will only continue in the next decade. In light of the above factors, as well as longer-term climatic changes, the challenge will be expanding the production of food while ensuring broad access to it.

27.      In order to achieve this, the Rapporteur highlighted the need for research and development into new agricultural technologies, credit provisions, income support, and sensible agricultural and economic policies.  In this vein, Mr Austrevicius specifically cited the need for further agricultural trade liberalization to bolster productivity, as well as agricultural investment.  He pointed out that experts suggest that another “green revolution” may be essential to feed the planet over the next 30 years. The Rapporteur reminded the Committee of their opportunity as parliamentarians to mobilize both public- and private-sector investment in agriculture.  He urged the Committee to support multinational efforts to bolster global food security, and to scrutinize their national contributions to the vital work of the World Food Program.

28.      During the discussion, the report’s sections on biofuel was reviewed. Highlighting the importance of the margin of production, one member opined that additional production of biofuel may be necessary to lower energy prices.  Another representative took the opposing view, criticizing the idea that certain countries will require a mandatory bio component to internal combustion fuels as a tax on land and resources.  In responding to the above, the Rapporteur agreed that more types of biofuel should be investigated in light of their positive effects on the environment and providing income in times of economic crisis.  He mentioned that technological advances may lead to less compromise in the impact biofuels have on food production.

IX.      Consideration of the Information Document, The Global Financial Crisis and its Impact on Defence Budgets [178 ESC 09 E] by Hugh Bayley (United Kingdom ), Chairman of the Committee

29.      The Chairman began by explaining that his assessment of how the current financial crisis was affecting defence spending and planning in the Alliance was not a formal Committee report, and therefore not to be endorsed or adopted.  Mr Bayley stated that NATO member states in Central and Eastern Europe have been struck hard by the crisis, and are generally decreasing their defence budgets, reducing military personnel, and focusing on the development of niche capabilities in order to set their defence spending at a more sustainable level.  Western Europe and the United States are scaling back expensive programmes to free funds for priority projects and operations.

30.      Going into further detail, the Chairman highlighted that defence budgets remained largely steady in 2009 as they were set before the crisis, but that 2010 onwards would likely see strong pressure on defence spending levels. He postulated that investment levels in research and development were particularly vulnerable, in spite of the fact that these were essential in helping NATO to maintain its overall military advantage.  Also of concern was the fact that Asia was likely to be the only region to experience strong growth in defence spending in the coming years, giving the funding problem a global-strategic dimension. 

31.      Mr Bayley then stated that the Alliance faced a grave set of dilemmas.  He drew attention to the fact that there was always a danger that democratic societies turn inwards in the face of an economic crisis, and that it was the job of parliamentarians to explain why doing so would only exacerbate the threats faced.

32.      In the discussion, it was noted that the full effects of the global financial crisis on national budgets have yet to materialize, and that the course of economic recovery would be important in this regard.  A member suggested that states will nonetheless have to maintain core defence capabilities or risk grave insecurity.  He highlighted that military spending was a bureaucratic tug‑of-war, and that NATO member country defence budgets were in a bad state. Another delegate pointed out that the problems surrounding burden sharing in the Alliance predate the financial crisis, suggesting that the issue may eventually lead to the end of the Alliance. There was discussion about the high public deficits that have been generated by the fiscal stimulus packages, and the trade-off between the need for short term liquidity and longer-term sustainability.

X.       Consideration of the draft General Report, The Global Financial and Commercial Crisis: Implications for the Transatlantic Community of Nations [175 ESC 09 E] by Simon van Driel (Netherlands ), General Rapporteur

33.      The General Rapporteur, Simon van Driel (NL) began his presentation by stating that although we are seeing the signs of growth in some economies, the world has not returned to business as usual.  The pace of economic recovery will be slow at best, and the international community now confronts a range of challenges.  First, it must rectify grave deficiencies in the global financial architecture.  The details of the banking sector reforms proposed by the G20 have yet to be finalized, and it is not clear whether we will be able to build an adequate regulatory system without thwarting the gains of international financial and trade flows. 

34.      Secondly, Mr Van Driel highlighted that serious fiscal and structural current account imbalances must be resolved.  Policymakers will have to commit to future spending cuts and/or tax increases, and should also implement counter cyclical fiscal policies.  They must resist the temptation to preserve domestic jobs through trade protectionism, and implement a range of labour policies in order to prevent millions of people from sliding into poverty.  The Rapporteur stated that the potential of the world’s largest emerging markets – China in particular – will need to be realized.  However, China will have to revalue the renminbi, and begin massive domestic spending projects if it is to become one of the world’s engines of economic growth.

35.      Finally, Mr Van Driel suggested that the international community must also deal with the security and humanitarian problems posed by failing economies in the developing world.  The global financial crisis has had serious implications in these places.  In light of the fact that real security challenges are faced, like resource wars and the potential rise of ungoverned spaces, the Rapporteur said that it was critical that we maintain, if not step up, our support to these countries to counter the effects of the crisis.  Mr Van Driel concluded by suggesting that it was not yet time to unwind the economic stimulus programmes.  He said that there was opportunity in crisis, but that political courage, economic finesse, and a good deal of imagination was now called for.

XI.      Consideration of the amendments and vote on the draft Resolution, Moving Beyond the Global Economic Crisis [211 ESC 09 E] by Simon van Driel (Netherlands ), General Rapporteur

36.      The Committee considered the draft Resolution proposed by the General Rapporteur, together with the amendments proposed to it.

The draft Resolution [211 ESC 09 E] Moving Beyond the Global Economic Crisis, as amended, was adopted.

XII.     Election of Committee and Sub-Committee Officers

37.      The Chairman announced the procedure for the election of Committee and Sub-Committee Officers for 2009-10. The following candidates were elected by acclamation:

Sub-Committee on East-West Economic Co-operation and Convergence

Chairman : Petras Austrevicius (Lithuania )

Vice-Chairman : Kresimir Cosic (Croatia )

Sub-Committee on Transatlantic Economic Relations

Rapporteur                                                                   Jeppe Kofod (Denmark )

All re-eligible Committee and Sub-Committee Officers were re-elected.

XIII.    Any other business

38.      After thanking the Committee for their contributions, the Chairman said the next full meeting of the Committee would be in February in Brussels, and then at the OECD in Paris, also in February.  He then declared the meeting closed.

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