SUMMARY OF THE MEETING OF THE

ECONOMICS AND SECURITY COMMITTEE

Saturday 1 June 2019

Knight’s HallBratislava CastleBratislava, Slovakia

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ATTENDANCE LIST

Chairperson Ivans KLEMENTJEVS (Latvia)

General Rapporteur Christian TYBRING-GJEDDE (Norway)

Rapporteur, Sub-Committee on Transatlantic Economic Relations Jean-Marie BOCKEL (France)

President of the NATO PA Madeleine MOON (United Kingdom)

Secretary General of the NATO PA David HOBBS Member delegations

Belgium Brigitte GROUWELSDamien THIÉRY

Canada Raynell ANDREYCHUKJane CORDY

Estonia Sven SESTERFrance Françoise DUMAS

Jean-Noël GUERINIJean-Luc REITZER

Germany Peter BEUTHHungary Andrea VARGA-DAMMItaly Cristiano ANASTASI

Adriano PAROLILatvia Ojars Eriks KALNINSLithuania Rasa JUKNEVICIENELuxembourg Roberto TRAVERSINIMontenegro Genci NIMANBEGUNetherlands Isabelle DIKS

Menno KNIPPortugal Luis Pedro PIMENTELRomania Ion CUPA

Corneliu STEFANSlovakia Eduard HEGERSlovenia Monika GREGORCICTurkey Osman Askin BAK

Muhammet Naci CINISLIMevlut KARAKAYAIlhan KESECI

United Kingdom Baroness ADAMSRichard BENYONDouglas CHAPMANTanmanjeet DHESI

United States James COSTANeal DUNNBrett GUTHRIELinda SANCHEZ

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Associate delegations

Armenia Viktor YENGIBARYANAustria Reinhold LOPATKA

Maximilian UNTERRAINERAzerbaijan Malahat IBRAHIMGIZI

Siyavush NOVRUZOVGeorgia Giorgi KANDELAKI

Irakli SESIASHVILINorth Macedonia Ilija DIMOVSKI

Katerina KUZMANOVSKAVesel MEMEDI

Serbia Dragan SORMAZSwitzerland Werner SALZMANNUkraine Borys TARASYUK

Oksana YURYNETS

Regional Partner and Mediterranean Associate Member Delegations

Algeria Sidi Othmane LAKHDARJordan Majed QUISIMMorocco Mohammed AZRI

Parliamentary Observers

Kazakhstan Yersultan BEKTURGANOVRepublic of Korea Woon Youl CHOI

Dong Yeol YEOM

Speakers Erik JONESDirector, European and Eurasian Studies, The School of Advanced International Studies, Johns Hopkins University Dr Frances G. BURWELLDistinguished Fellow, The Atlantic Council, WashingtonDr Paula PUSKAROVAVice-Rector for Research and Doctoral Studies, Economics University of Bratislava

International Secretariat Paul COOK, DirectorAnne-Laure BLEUSE, Coordinator Nadia O’SHAUGHNESSY, Research Assistant

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I. Opening remarks by Ivans KLEMENTJEVS (Latvia), Chairperson

1. The Chair, Ivans Klementjevs (LV), welcomed the Committee to Bratislava and thanked the Slovak delegation for their hospitality. He reminded members that, although not being printed this year, Committee draft reports can be found online. He asked members to ask succinct questions so as to ensure punctuality.

II. Adoption of the draft Agenda [078 ESC 19 E]

2. The draft Agenda [078 ESC 19 E] was adopted.

III. Adoption of the Summary of the Meeting of the Economics and Security Committee held in Halifax, Canada, on Saturday 17 November 2018 [247 ESC 18 E]

3. The Summary [247 ESC 18 E] was adopted.

IV. Consideration of the Comments of the Secretary General of NATO, Chairman of the North Atlantic Council, on the Policy Recommendations adopted in 2018 by the NATO Parliamentary Assembly [043 SESP 19 E]

4. The members of the Economics and Security Committee recognised the document [043 SESP 19 E] with no comments.

V. Presentation by Erik JONES, Director, European and Eurasian Studies, The School of Advanced International Studies; Johns Hopkins University, on The Challenge of Economic Populism, followed by a discussion

5. Erik Jones specified that he would be talking about the impact of populism on economic performance across advanced industrial societies. He began by noting how confusing the word “populism” is, especially when journalists employ it in a broad sense and/or presuppose that it is a negative phenomenon from the outset. For the sake of clarity, Mr Jones chose to define populism according to its five key characteristics. These are: use of alternative media and forms of communication; positioning of policy and politics against prevailing elites; reliance on direct democracy and referendum politics; advocacy of national sovereignty as a principle above all others; and finally a high degree of electoral volatility. He did not necessarily see these characteristics as negative, noting that several of them serve to engage a larger and more diverse group of people than ever before in the political process. 6. However, the speaker pointed out that the aforementioned characteristics have distinct economic implications. He emphasised the importance of managing economic expectations by communicating in a way that markets can anticipate. He explained that once expectations become unclear, central banks lose their leverage over economic performance. The use of alternative media by populists fuels this sort of communication confusion.7. He also drew attention to the fact that anti-elite posturing feeds into a rejection of expertise. Although useful at times, it is not clear ex-ante whether challenging conventional wisdom will have positive or negative effects. The speaker explained that populists often seek to undermine conventional wisdom about the advantages of free trade. This leads many to reject free trade rather than to try and moderate its damaging effects. The consequences of such a rejection can be even more debilitating.

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8. The speaker remarked that, in the conduct of modern trade negotiations, it is important to discuss regulatory regimes, given that these impose high costs of compliance on firms. He noted that referendum politics is beginning to be activated around regulatory issues, such as environmental protection or food standards. He described the disagreements that this sort of politics leads to, often involving a dispute settlement mechanism and impairing our ability to negotiate trade agreements. By way of example, he emphasised the diverse composition of the new European Parliament and its broad focus on a range of specific issues. He said that it was difficult to imagine how such a Parliament could pass a complex, wide-ranging trade agreement.9. The speaker stressed, that in an economically interdependent world, our ability to make decisions domestically is often conditioned by the reactions of other countries, as noted by Richard N. Cooper in the 1960s. Because of this, a large array of international institutions tasked with economic policy coordination has come into being. In the European Union, for example, the macroeconomic policy regime is one of constant dialogue and attempted alignment of national fiscal policymaking. Mr Jones noted that we are now witnessing efforts to break out of this European macroeconomic policy coordination regime in order to assert national sovereignty. This seems to be the case, for example, in Italy. He warned that, if the bond markets reject the Italian government’s argument, then its ability to achieve its objectives through an expansionary fiscal policy will be limited.10. The speaker then illustrated the electoral volatility of populist politics with the recent example of Italy’s two ruling parties. He remarked that this sort of volatility can lead to rapid changes in policy from one government to another, which are destabilising in macroeconomic terms.11. The speaker concluded by denying that populism is necessarily a negative phenomenon. He said that challenging conventional wisdom can be productive but asked that we be vigilant about the possibly damaging consequences of such a rejection of the status quo.12. The Chair thanked the speaker for his presentation and underlined the relevance of his remarks in the context of the European Parliament elections and Brexit. He pointed out that many in the United Kingdom now seem unsure whether they voted for the right outcome.13. The speaker took a stance against any decisions in politics that are permanent, arguing that there should always be the possibility to correct mistakes. He said he was apprehensive of referenda because of the limited space they provide to address unexpected consequences. 14. Richard Benyon (UK) echoed Mr Jones’ remarks about the concept of referenda. He said that, as a result of the Brexit referendum, the United Kingdom is currently experiencing a conflict between popular democracy and the ability to deliver its wishes through representative democracy. 15. Mr Benyon then remarked that, after the banking crisis, central banks started printing money on an industrial scale, which in many cases prevented economies from falling into recession. However, it also helped to fuel disparities between those who have access to capital and those who do not, both in reality and in peoples’ minds. This, in turn, leads to a proliferation of parties advertising easy solutions to resolve issues related to economic inequality. In light of these developments, Mr Benyon asked whether economists and central bankers fully understand the consequences that their decisions can have over the next decade or so.16. The speaker explained that central bankers are aware of and often feel very uncomfortable about the effects of their actions on societal disparities. He also noted that the political independence of central banks is one of the prevailing norms of our economic communities. The speaker questioned whether this norm should not be qualified somewhat. However, he remained conscious of the potentially damaging consequences of any such qualification.17. Christian Tybring-Gjedde (NO) brought attention to the example of Norway. He said that Norway is currently under great pressure to spend the large amounts of money it has saved on infrastructure and other investments. However, the Norwegian national bank

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argues that greater investment will increase inflation. Mr Tybring-Gjedde remarked that, in our globalised world, national banks should perhaps look beyond the national economy towards the global one more than they currently do.18. Moreover, Mr Tybring-Gjedde stated that populists often come to power because people feel as though they have not been listened to by the mainstream media, with its emphasis on political correctness. He asked how the mainstream media could change so as to represent peoples’ views in a better way.19. The speaker referred to Barry Eichengreen’s theory that, every time there has been a change in communications technology in history, people have found ways to circumvent the mainstream media. He said that once a pattern of communications becomes institutionalised, it closes itself off. 20. In response to Mr Tybring-Gjedde’s first question, he agreed that Norway should plan its future in the global economy, given the global footprint of its sovereign wealth fund. He said that Germany, too, should be investing more in national infrastructure. He noted that Germany’s unwillingness to undertake these investments is having negative repercussions for other European economies. Since Germany is dependent on European trade, these repercussions will ultimately be felt in Germany too.21. Osman Askin Bak (TR) asked whether the Chinese One Belt, One Road initiative is China’s version of a populist economic model.22. The speaker replied that the One Belt, One Road initiative is interesting because it represents China’s fourth attempt to address persistent macroeconomic imbalances and employ the assets it has accumulated abroad in a long-term investment of strategic consequence. He did not view the initiative as a populist measure, but rather as a form of investment aimed at better connecting China with the outside world. However, he acknowledged that China does not yet know how to mitigate the negative political consequences of this macroeconomic rebalancing.23. The Committee director, Paul Cook, asked the speaker to comment on the role of institutions in mediating the populist impulse. Secondly, he enquired about possible remedies and wondered how economic logic can prevail in the face of the aforementioned challenges.24. The speaker said that the choice of institutions typically has political implications. He gave the example of the European debate about how to restructure sovereign debt and which institution to hold responsible for this – the European Stability Mechanism or the European Commission. He noted that these two institutions are very different and that creditor countries have differing preferences to debtor countries in their regard. The speaker emphasised the importance of holding discussions – much like this one – about how and why economic policy must be coordinated amongst countries. In his opinion, these discussions help to clarify why certain policies became conventional logic in the first place.25. The Chair mentioned a significant new infrastructure project for Latvia involving a railway from Tallinn to Warsaw. However, he expressed fears about the continued effects of the economic crisis. He asked whether there is a button that could be pushed to put the crisis to an end.26. The speaker noted the valuable role played by the European Union in facilitating the sustainability of long-term investments and preventing disruption to projects as a result of changing macroeconomic variables. He stressed the need to ensure continuity of investment across the business cycle.27. The Committee director, Paul Cook, asked whether the speaker could relate the problems being discussed to the need for a global hegemon to exercise financial and regulatory leadership. He remarked that the current international world order is marked by the absence of clear leadership in contrast to 19th century British or post-war US hegemony.28. The speaker agreed that the notion of leadership was very important, particularly in the case of the United States in the 20th century. US hegemony helped create the international institutions we have today. He related this to his concerns about the Trump administration’s emphasis on national sovereignty at the expense of international order and the institutions

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needed to preserve it. He noted the many ways that international cooperation enhances rather than diminishes national sovereignty.

VI. Presentation by Dr Frances G. BURWELL, Distinguished Fellow, The Atlantic Council, Washington, on The Transatlantic Digital Marketplace: Cooperation and Tension, followed by a discussion

29. Frances G. Burwell explained that she would be speaking about digitalisation and its impact on transatlantic discord and cooperation. She acknowledged the current transatlantic trade-related tensions, but noted that when it comes to digitalisation, the United States and the European Union are the world’s strongest partners. She provided a variety of statistics to illustrate the strength of transatlantic digital links.30. The speaker noted one exception within this field of cooperation – platforms. With regard to platforms, the United States dominates, followed by China. Europe only has 2% of the global value of platforms. 31. The speaker explained that, despite this interlocking digital economy across the Atlantic, a number of differences and disagreements persist. These differences largely arose because there was too much optimism about the power of new technologies, and few imagined their potential risks. Ms Burwell pointed out that no one really thought about privacy implications, possible surveillance capabilities, online fraud or cybercrime. She emphasised the importance of encouraging the good elements of new technologies from an early stage, whilst restraining the less desirable ones. She mentioned artificial intelligence (AI) as the latest technological development that needs to be discussed. She also welcomed the European Commission’s guidelines about ethical Artificial Intelligence.32. The speaker observed that the biggest difference between the United States and the European Union exists in the field of regulation. She said that Europe has emerged as a regulatory superpower whereas the United States has imposed little regulation aimed at the digital sector specifically. She underscored that the US approach is not simply a mirror of the Trump administration’s approach, but rather one that existed previously and was exacerbated in recent years. However, she pointed out that many large US companies have had to comply with EU regulation in order to serve the European market.33. The speaker emphasised two points about regulation. Firstly, she said it was important not to restrict innovation and growth, particularly of new start-ups and SMEs, through regulatory measures. Secondly, she suggested that soft law and codes of conduct are useful in the fast-moving technology sector, given that real law takes years to pass.34. The speaker insisted that the transatlantic community is paying too much attention to differences between the United States and Europe and not giving sufficient concern to the truly worrying actors in the digital sphere like Russia and China. In her opinion, the creation of a global set of rules for the digital economy hinges on cooperation with these actors.35. The speaker then went on to explore some of the specific issues that are causing angst in the digital partnership between the United States and the European Union. Firstly, she mentioned privacy, which has been a sore point because of the General Data Protection Regulation (GDPR). She said it would be interesting to see whether more states in the United States would introduce their own privacy laws, whether there would be an ombudsperson, and whether the Patriot Act would be renewed. 36. Secondly, the speaker mentioned current investigations in competition policy and noted the importance of Margrethe Vestager’s replacement at the European Commission. She stressed the need for a dialogue about whether the digital world requires a different set of criteria than traditional competition cases, given its differing means and ease of entry. 37. Thirdly, the speaker turned to the issue of digital taxation, which is currently fomenting transatlantic tension. She noted that firms from the United States see such taxes as arbitrary and targeted at American interests. However, she said that selling data must be recognised as a new way to make money and should, therefore, be liable to proper taxation.

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38. Fourthly, the speaker described transatlantic disagreements about data flows. She explained that the United States is in favour of the free movement of data, whereas Europe lays far greater stress on protecting data. She asked what standards, if any, could protect data so that it flows freely whilst avoiding data localisation.39. The speaker then briefly mentioned copyright and platforms regulation but noted that these were issues of lesser magnitude for the transatlantic digital relationship. Ms Burwell paid more attention to anti-terrorism and hate speech, on which there is a clear emerging transatlantic divide. She explained that, since there is no concept of illegal speech in the United States, US companies cannot be required to take down material - although many have internal guidelines that allow them to do so. This is why the US government did not sign the Christchurch Call or the G7 charter on toxic content. She said it remains to be seen how the differing approaches of the United States and European Union with regard to hate speech will be reconciled.40. On the broader issue of cybersecurity, the speaker emphasised that the United States and the European Union should work together to develop standards at the technical level. With regard to 5G and secure networks, the speaker underlined the importance of joint risk assessments of both civilian and military infrastructure. Moreover, she explained the US government’s stance towards Huawei, including its fears about disruption to critical infrastructure and about the company’s ties to China’s security agencies.41. The speaker concluded by emphasising the challenges that Russia and China represent in the digital sphere. She acknowledged that this is a difficult time for the transatlantic partnership and noted that the only productive way forward is via a technical transatlantic discussion on privacy, data flows and cybersecurity standards. She also underlined the need for regular high-level transatlantic consultation on digital issues, perhaps in the form of a Digital Council. She insisted that the United States and its European allies are not vastly different in their digital politics, although have different regulatory cultures which create different ways of achieving their digital aims.42. The Chair asked what the advantages of 5G projects will be.43. The speaker replied that, in order to continue functioning at current capacity, more bandwidth will be needed, especially when more artificial intelligence starts to be used in everyday life. She emphasised that it is hard for rules to keep up with this pace and for consumers to always know what they are consenting to.44. Jean-Marie Bockel (FR) asked whether the need to mount a common front against China will, in the end, help to reconcile differences between Europe and the United States and propel the establishment of more formalised rules in the digital sphere. Secondly, Mr Bockel suggested that we establish criteria to better shape any decision about Huawei’s role. 45. The speaker said that in the short-term, China seems to be quite skilled at building good relations with other countries and using its resources strategically on the international scene. For example, China has recently invested a lot of money in Europe. The speaker warned against being blinded by these realities and urged members to think about the potential difficulties of longer-term cooperation with China. On 5G, she said that President Trump undercut his own argument when he indicated that easing restrictions on Huawei could be part of the trade deal. 46. Mr Benyon enquired about the differences in transatlantic approaches to platforms. He emphasised how difficult it was to strike a balance between the freedom and the safety of individuals. Furthermore, he noted that although artificial intelligence will have a transformative impact on our lives, it could be used in malign ways in the development of weapons systems. He asked whether there could and should be a huge international effort to regulate such malign uses on a global scale.47. The speaker expressed her support for multilateral institutions and agreements. She explained that these create norms, which countries generally make the effort to meet. She agreed that it would, therefore, be worthwhile to discuss the potentially dangerous uses of artificial intelligence in international fora. Responding to Mr Benyon’s point about the balance between freedom and security, the speaker said that this varies between countries,

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irrespective of technology. She noted that encryption was the latest development in this debate. 48. Tanmanjeet Singh Dhesi (UK) asked whether the speaker deemed it crucial for Europe and the United States to agree on a regulatory framework governing the digital economy. He expressed his concern about the United States’ position regarding hate speech. He also asked what the speaker thought about the new surveillance technologies being used by authoritarian regimes to monitor individuals.49. The speaker replied that she feels very uneasy about the use of technological developments like facial recognition throughout society. She said that governments need to anticipate how technology could be used by authoritarian regimes to suppress minorities and indeed the general population. She welcomed discussions about this in the human rights community. 50. Linda Sanchez (US) enquired whether the United States and Europe should develop one or perhaps several digital systems. 51. The speaker did not think a unified regulatory framework was achievable, given the vast differences in our regulatory traditions. She said it was important to make these systems compatible rather than the same.52. Mevlut Karakaya (TR) asked for the speaker’s views about the effect of the digital economy on sustainable development goals.53. The speaker used the example of mobile banking to illustrate how digitalisation can help spur economic development.54. Ojars Eriks Kalnins (LV) noted the differences between approaches to digital banking and services in the United States and the European Union. He remarked that Europe had moved more quickly towards digitalisation in the banking sector. He also said that, due to the GDPR, a number of American newspapers are no longer accessible in Europe.55. The speaker explained that small countries feel more pressure to demonstrate transparency towards others. She noted as well that many companies in the United States did not realise how GDPR would affect them, so simply turned off access when it first began to impinge on their operations. She urged further discussion in order to foster a greater understanding of GDPR in the United States.56. The Committee director, Paul Cook, asked the speaker to comment on the innovative notion of social graph portability. 57. The speaker agreed that the portability of data is positive and important and also emphasised the need for ordinary consumers to be able to control their data and understand its limits. She said consumers must be conscious of what companies offer them.

VII. Presentation by Dr Paula PUSKAROVA, Vice-Rector for Research and Doctoral Studies, Economics University of Bratislava, on The Slovak Republic and the Digital Economic Revolution, followed by a discussion

58. Paula Puskarova said she hoped to showcase Slovakia’s digital credentials during her presentation. She explained that Slovakia is special in a number of ways: its economy is very small, very open and very much reliant on low-skilled jobs.59. The speaker noted that automation represents a significant challenge for Slovakia. According to the OECD’s latest forecasts, Slovakia is the most vulnerable OECD country when it comes to the negative effects of automation. 33% of Slovak jobs are considered highly automatable. This is largely linked to Slovakia’s status as the uncontested global leader in car production, as well as to the mismatch between the population’s educational credentials and the jobs available in the Slovak economy. 90% of young Slovaks have a university degree and it is difficult for many of them to find employment that matches their skill level.60. However, the speaker also presented economic studies about automation that dispute its straightforwardly negative effects on employment. She said that jobs may, in fact, be created as well as destroyed as a result of automation, although studies differ in their

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numerical estimates of its effects. She explained this divergence in economic findings through reference to different estimation methods used by researchers.61. The speaker brought attention to another damaging effect of automation, namely the growth in income inequality that it produces. Overall, she judged the societal drawbacks of automation to be greater than its benefits. However, she was more optimistic about digitalisation, pointing to the technological spill-overs and efficiency gains that it produces.62. The speaker noted that Slovakia is lagging behind the OECD average when it comes to the digital economy and digital public services. She said that the introduction of e-government initiatives requires considerable time and energy. However, she remarked that Slovaks conduct a high level of transactions online and that the country is internationally renowned for its Information Communication Technology (ICT) sector. Around 20% of Slovak university graduates are in ICT but there are not enough jobs in this sector for everyone, resulting in a significant brain drain. Furthermore, the speaker explained that Slovakia does not spend as much as its neighbouring countries on research and development.63. The speaker then turned to Slovakia’s stance towards digital regulation. She noted that Slovakia participates in the GDPR, has been in favour of the EU’s digital tax, has strict tax guidelines when it comes to cryptocurrencies and imposes taxes on platforms like Uber and Airbnb. She added that online gambling in Slovakia is now open to anyone who receives a licence for it. She also emphasised that, despite these high levels of taxation, Slovakia seeks to ensure that profits can be made in the digital market.64. The speaker informed the members that Slovakia is not a significant target for cyber-attacks, apart from isolated cases in May 2017 and March 2019. 65. The speaker ended by suggesting that the digital revolution can be a useful tool in combating climate change. She drew attention to the concept of “smart green growth”.66. The Chair thanked the speaker and remarked that the NATO Parliamentary Assembly has also been trying to improve its credentials on the green and digital front by substantially reducing its reliance on paper documents. 67. The Committee director, Paul Cook, observed that the Slovak economy is very closely linked to the German one. He asked to what extent the Slovak and German economic models are similar, despite their difference in size.68. The speaker noted that the Slovak economy is fundamentally dependent on the German one. She said that it was important for Slovakia to partially restructure its economy, as it is currently too reliant on Foreign Direct Investments (FDI) and on low-skilled jobs. She suggested that Slovakia should further embrace the services and ICT sector.69. The Chair asked what Slovakia’s goals in the digital sphere are.70. The speaker said it was key to develop Slovakia’s strong e-government position even further and to digitalise other public services quickly. She also underlined the importance of clustering due to the spill-overs and agglomeration effects it produces. She noted that Bratislava profits considerably from Vienna’s proximity and suggested that technology spillovers between the two cities should be harnessed to an even greater degree.71. Mr Bak drew attention to the fact that Amazon has considerable investments in Slovakia and could, therefore, be a driving force for the Slovak economy. He asked the speaker to comment on this.72. The speaker revealed that she had actually spent a year working for Amazon in Bratislava. She said that Amazon is attractive for highly educated Slovaks due to the high wages and good social security that it offers. However, she explained that jobs in the firm’s Bratislava office do not demand particularly high skill levels or creative input. She concluded that Amazon helps increase wages in the economy but does not contribute to innovation or technology capital accumulation in a substantial manner.73. Eduard Heger (SK) asked the speaker which areas of its economy Slovakia should develop in order to provide jobs for those who lose their jobs as a result of automation. 74. The speaker said she sees considerable potential in small start-ups and also highlighted the importance of training people to ensure that their skills better fit new market realities.

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VIII. Summary of the future activities of the Sub-Committee on Transition and Development

75. Mr Klementjevs noted the absence of Sub-Committee Chairperson Michal Szczerba. On Mr Szczerba’s behalf, he thanked Rapporteur Ausrine Armonaite for her timely report about North Macedonia.76. Mr Klementjevs recalled the Sub-Committee’s interesting visit to North Macedonia in March. He congratulated the country on resolving its name issue with Greece and improving relations with Bulgaria. 77. The Chair mentioned the Sub-Committee’s tentative plan to attend the Rose-Roth Seminar which is likely to take place in Bosnia and Herzegovina in November. He said the International Secretariat would inform the members once this trip is confirmed.

IX. Summary of the future activities of the Sub-Committee on Transatlantic Economic Relations, by Jean-Luc REITZER (France), Vice-Chairperson of the Sub-Committee

78. Jean-Luc Reitzer (FR) informed of the absence of Sub-Committee Chairman Faik Oztrak. Mr Reitzer thanked Sub-Committee Rapporteur Jean-Marie Bockel for his interesting report about digital markets and cyber security.79. Mr Reitzer recalled the Sub-Committee’s joint visit to Germany in March with members of the Political Committee. He thanked the German delegation for arranging an excellent programme.80. He also told the members that the Sub-Committee would travel to Washington and Seattle in just over a week.

X. Consideration of the draft Report of the Sub-Committee on Transition and Development The Republic of North Macedonia: Political Change, NATO Accession and Economic Transition [081 ESCTD 19 E] by Ausrine ARMONAITE (Lithuania), Rapporteur, and presented by Menno KNIP (Netherlands), Vice-Chairperson of the Economics and Security Committee

81. Menno Knip (NL) informed of the absence of Rapporteur Ausrine Armonaite due to an important political meeting in Lithuania. He explained that he would be delivering Ms Armonaite’s remarks in her stead.82. This draft report was written on the eve of North Macedonia’s accession to NATO, with the aim of charting the country’s political and economic transition since independence. The planned accession follows the resolution of the long-standing name dispute between North Macedonia and Greece in June 2018. North Macedonia is expected to become the Alliance’s 30th member at some point over the next year, once the last Allied country ratifies its Accession Protocol.83. Although North Macedonia has undergone a political transition fraught with pitfalls, the country appears to have moved in a decidedly more democratic direction since 2017. The new administration set about guaranteeing fairer media funding, placing the secret police under greater democratic oversight, repairing relations with Bulgaria, giving the Albanian language official national recognition, and accelerating the campaign for NATO and European Union membership. This could herald the beginning of much needed but painful economic reform, which would be essential to fulfilling the country’s aspirations to join the EU. 84. The draft report encourages parliaments in each NATO member country to ratify North Macedonia’s Accession Protocol as quickly as possible. Doing so will help send a strong signal that NATO’s door remains open and that those who manage to walk through it will be more secure, stable, and prosperous as a result.

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85. The draft report underlines the need for continued international support for North Macedonia’s efforts to carry out essential democratic reforms, tackle corruption, undertake judicial reform and guarantee media freedom. It applauds ongoing attempts to foster a spirit of bipartisanship and interethnic reconciliation in this long-divided country. 86. Françoise Dumas (FR) noted that North Macedonia has just elected a new president and has repeatedly demonstrated its close orientation towards NATO and the Euro-Atlantic area. She argued that North Macedonia’s accession to NATO would have a number of advantages for both the Alliance and for North Macedonia itself. She urged the European Council to decide to launch negotiations about North Macedonia’s EU membership later this month. She pointed out that, although the French parliament has not yet ratified Skopje’s Accession Protocol, this should occur before the end of the year.87. Vesel Memedi (MK) reaffirmed North Macedonia’s commitment to NATO and called the signing of its NATO Accession Protocol in February a “historic landmark”. He said that North Macedonia’s membership in NATO would contribute substantially to both the country and the region’s security and stability. He emphasised the threat associated with disinformation. Moreover, he welcomed international support for Skopje’s efforts to counter the disinformation campaign that accompanied last year’s referendum. 88. Mr Memedi highlighted the issue of incomplete democracy in North Macedonia. He said he regretted the international community’s tolerance of Skopje’s patchy record on rule of law and uneven commitment to democratic values in the past. He pointed out that North Macedonia is now working hard to further spur its political transition. 89. Mr Memedi urged the members to convince colleagues at their respective national parliaments to ratify the Accession Protocol as soon as possible so that North Macedonia can become a fully-fledged member of NATO. He underlined that it is better to support stability than to export instability from the Western Balkans. He ended with a quote from Winston Churchill: “the Balkans produce more history than they can consume”. He was pleased to note that positive history is finally being produced in the region.90. Mr Knip vowed to be a staunch support of Accession Protocol ratification in the Dutch Parliament.91. Dragan Sormaz (RS) announced that Serbia had several comments about the report, which he would also send to the Rapporteur in written form. Firstly, he noted that Serbia had in fact welcomed the Prespa agreement, as well as North Macedonia’s general commitment to make independent foreign policy decisions. Secondly, he asked for references to “Kosovo” and “Serbia” to be changed to “Pristina” and “Belgrade”. Thirdly, he did not think it was appropriate or relevant for the dispute between the Serbian and Macedonian Orthodox Churches to feature in a political report. Fourthly, he pointed out that Serbia is indeed a non-militarily aligned country but has conducted 160 military exercises with NATO since 2006 and only 12 with Russia. Mr Sormaz concluded by calling on all Allied parliaments to ratify North Macedonia’s Accession Protocol, as well as to support its quest to become an EU candidate country.92. Genci Nimanbegu (ME) also encouraged all NATO member states to ratify North Macedonia’s Accession Protocol as soon as possible. He emphasised that North Macedonia cannot be considered outside of its geographical context. He explained that the Western Balkans is a region that does not have a long history of democracy and underlined that the common future of all Western Balkan countries should be in NATO. He noted that there has been a deterioration in dialogue among these countries since 2013 and therefore urged the NATO Parliamentary Assembly to maintain its steadfast commitment to supporting the region. He mentioned a recent statement made by the Serbian Prime Minister about the head of government in Pristina, calling this an “unfortunate occurrence” in the region’s politics.93. Mr Sormaz replied that Belgrade is attempting to reach an agreement with Pristina. He blamed Pristina for imposing taxes of 100% on Serbian goods. He explained that Belgrade considers the three individuals targeted in the Serbian Prime Minister’s statement members of a terrorist organisation by Serbia. Mr Sormaz also noted that, over the past year, 13 countries withdrew their recognition of Kosovo and not a single new country recognised its

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independence. Overall, he underlined that over 60% of countries worldwide do not currently recognise Kosovo’s independence. 94. Ms Dumas clarified her previous point about the French Parliament’s “reluctance” to ratify North Macedonia’s Accession Protocol. She explained that this reluctance stemmed simply from time constraints and busy parliamentary agendas. She affirmed France’s complete support for North Macedonia’s accession to NATO.95. Mr Nimanbegu underlined that he stood firmly by his previous remarks. He referred back to the morning’s presentation about populism and stressed that the NATO PA should remain committed to helping tackle the negative effects of populism in the Western Balkans.96. Mr Knip promised to forward all comments on to Ms Armonaite, who would then make appropriate adjustments to the report.

XI. Consideration of the draft General Report Economic Sanctions as a Tool of Foreign Policy [079 ESC 19 E] by Christian TYBRING-GJEDDE (Norway), General Rapporteur

97. Mr Tybring-Gjedde introduced the draft general report, which analyses the role of economic sanctions in international policymaking and considers the conditions under which these tools can be effective. It begins with a theoretical background on sanctions as a policy tool that operates on the spectrum between peace-time diplomacy and war. 98. The draft report finds that economic sanctions can be effective under certain circumstances. They must be clearly structured and linked to an explicit policy ambition. A pathway for their cancellation must be mapped. Furthermore, they must be invoked with prudence, only when strategically necessary. Overreliance on sanctions risks damaging the international trading order, good diplomatic practice and the sanctioning country’s leadership capital. The frequent application of secondary sanctions in particular often does more to foment discord amongst allies than to push adversaries in the intended direction.99. The draft report goes on to look at several recent cases in which both North America and Europe have employed sanctions to achieve critical policy ends: Iran, Russia and North Korea. It assesses the effectiveness of sanctions levied on each of these three countries.100. Moreover, the draft report explores the GMA passed by the United States in 2016, as well as its iterations in other countries. It underlines the potential for the GMA to become a powerful policy tool. 101. Mr Benyon affirmed his support for the Global Magnitsky Act and noted that the United Kingdom has recently enacted its own version of this legislation. He expressed his hope to explore this policy tool further at the Annual Session in London and perhaps even hear from Bill Browder, whose actions largely propelled the initial Magnitsky Act into being.102. Mr Benyon also said that it was too simplistic to declare the international sanctions levied on Russia ineffective simply because Russia has not withdrawn from Crimea. Instead, he suggested that we analyse what would happen if the sanctions were lifted. He argued that the Russian government responds to strength and exploits perceived weakness. It is, therefore, important to punish the coterie of Russian kleptocrats around the regime.103. Furthermore, Mr Benyon brought attention to the Russian chemical weapon attack that occurred in Salisbury. He praised the Alliance’s strong response to this attack and urged the Allies to remain strong in their resolve to face down wrongdoing of this kind.104. Mr Tybring-Gjedde noted that the idealistic motive of sanctions is to uphold liberal values. However, he recognised that large countries may deploy their sanctions for additional, different goals to smaller ones. This is often the case with secondary sanctions in particular. 105. Mr Tybring-Gjedde acknowledged Mr Benyon’s points about Russia, but presented a different perspective. He remarked that the sanctions against Russia are not sanctions against the country as such but rather against particular individuals. He suggested that the sanctions could be withdrawn if the common goal behind them was not reached. He argued

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that the West needs to be careful with bracketing countries as enemies. However, he also noted the difficulty of withdrawing sanctions now, given the situation in Eastern Ukraine.106. Borys Tarasyuk (UA) pointed out that attempts to exchange North Korea’s termination of its nuclear programme with assurances did not work. He also said the Russian regime is pretending that sanctions are not having a damaging impact when, in fact, they are. He noted that the sanctions imposed on Russia have been ineffective in stopping Russian aggression against Ukraine. He concluded by asking whether it may be worthwhile to impose another, more severe set of sanctions which would really hurt the Russian economy.107. Mr Tybring-Gjedde observed that it is difficult to know exactly what happened during discussions between North Korea and the United States. He suggested that the discussions may have been premature but also said that North Korea probably deserves to continue being outside the international community.108. Mr Tybring-Gjedde noted that imposing tougher sanctions on Moscow would impact the Russian economy substantially. He was not sure whether the Euro-Atlantic community would be any safer if the Russian economy was brought to its knees.109. Mr Karakaya asserted that a free and rules-based international trading order is crucial not only for global growth but also for international peace and security. He emphasised the pressure that multilateralism is currently under. He affirmed Turkey’s longstanding commitment to multilateralism and collective action. Turkey does not agree with the imposition of unilateral economic measures as instruments of foreign policy and calls on Allies to carefully consider the effects of the sanctions they impose. Mr Karakaya pointed out that sanctions can harm Allies and their economies. He therefore called for the consideration of supplementary measures such as exceptions and relief mechanisms to protect Allies from these harmful effects. He mentioned that Turkey was proposing some minor amendments to the draft report but promised to elaborate on the details via email. 110. Woon Youl Choi (KR) agreed that sanctions can be an effective tool of foreign policy. He expressed his appreciation to NATO for supporting the two recent United States – North Korean summits and, more generally, for advocating for a peaceful resolution of tensions on the Korean Peninsula. He asked for the NATO Parliamentary Assembly’s perspective on ways in which North Korea’s serious food crisis could be factored into international sanctions policy.111. Giorgi Kandelaki (GE) concurred with Mr Benyon about the value of the GMA. Mr Kandelaki pointed out that the Russian government has quite publicly expressed its aversion to these targeted, personal sanctions. He noted that, as Russia exports corruption, the West typically ends up importing this corruption.112. Mr Kandelaki drew attention to upcoming developments at the Council of Europe regarding Russia. He criticised the likely restoration of the Russian delegation’s voting rights in the Council later this month. He underlined that Russia would see this as a victory and a tacit Western acceptance of its invasion of Crimea. He concluded that amending the rules and statutes of the Council of Europe in this manner was a mistake.113. Mr Memedi mentioned the notion of “automatic vigilance” in psychology, according to which the more negative notions we employ, the more effective we typically are. He noted that sanctions are a negative tool used for political purposes. He asked whether trade can also represent such a tool in foreign policy.114. Mr Tybring-Gjedde told Mr Memedi that tariffs could and indeed were being used as a tool of foreign policy. He labelled this a very negative development. Furthermore, he agreed with Mr Kandelaki and Mr Benyon about the power of sanctions targeted at particular individuals. 115. Mr Tybring-Gjedde agreed with Mr Choi about the importance of speaking with a united voice. However, he underlined that it is often difficult to remain united when it comes to sanctions because of differing national interests and resources. He noted that the international community is perhaps able to speak with one voice on the topic of North Korea – but not necessarily Iran. In response to Mr Karakaya, he said it was important to ask who

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wrote the rules of the international system. He stated that there are no rules that we can all agree on, due to the multiplicity of different national interests.116. Mr Tybring-Gjedde thanked everyone for their remarks and promised to look into incorporating them into the report before the Annual Session in London.

XII. Consideration of the draft Report of the Sub-Committee on Transatlantic Economic Relations North American and European Approaches to Digital Markets and Cyber Security [080 ESCTER 19 E] by Jean-Marie BOCKEL (France), Rapporteur

117. Jean-Marie Bockel introduced the draft report, which explores the recent evolution of the digital economy as well as the economic and security challenges it poses to North America and Europe. 118. The report considers how countries are responding to these challenges, noting that national responses are often uncoordinated. It looks at specific areas of tension in the digital sphere between Europe and the United States, such as data privacy and market regulation. Furthermore, it assesses the specific security challenges posed by China and Russia’s involvement in the digital economy. If not properly protected, digital devices and infrastructure can leave open democracies vulnerable to foreign manipulation and massive propaganda campaigns with potentially devastating consequences119. The draft report finds that revolutionary economic changes demand paradigmatic shifts in government regulations and international collaboration. Democracies need to work together in the face of economic competition and digital security challenges from rivals guided by very different political, social and international objectives. They must do so with shared societal values in mind. These include defending democratic norms and institutions, protecting individual rights such as privacy, defending national and collective security interests, preventing the emergence of corporate monopolies, taxing entities that operate seamlessly across borders, and deterring cyber-attacks.120. James Costa (US) noted how challenging it is to formulate a unified response to Huawei and other such Chinese firms that could compromise transatlantic security. 121. Muhammet Naci Cinisli (TR) asked the Rapporteur if he thought cyber power was stronger than “superpower” in today’s world. He then enquired which of these powers Russia represents.122. Mr Bockel agreed with Mr Costa about the importance of the Huawei issue. He recalled the reluctance he was met with in France several years ago when he mentioned Huawei as a possible Trojan horse when it came to attacks penetrating our networks. He noted that the discussion about how best to treat Huawei has only recently begun.123. Mr Bockel explained that, in today’s world, “superpower” and cyber power are closely associated. He pointed out that Russia is increasing its presence in cyber-space, including in an offensive way, in order to re-assert its power. He noted how important is for NATO and the parliaments of its respective countries to reflect on the fact that some countries are developing offensive capabilities. However, he also alluded to the difficulty of multilateralism in the cyber field, given the weak links and threats that characterise this field.

XIII. Any other business

124. No other business was raised by the members.125. Mr Klementjevs thanked Menno Knip for his active contribution to Committee affairs for many years and wished him all the best in his future endeavours.

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XIV. Date and place of the next meeting

126. Mr Klementjevs informed of the upcoming visit of the Sub-Committee on Transatlantic Economic Relations to Washington, D.C. and Seattle.127. He also reminded the members that the full Committee would meet at the Annual Session in London in October.

XV. Closing remarks

128. The Chair thanked the Slovak hosts, guest speakers, interpreters, NATO PA staff, and Committee members for their hard work and constructive participation.

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