The U.S.-EU Spying Fiasco: Why Commercial Espionage is a Bad Idea for the United States

http://blogs.cfr.org/renewing-america/2013/07/03/the-u-s-eu-spying-fiasco-why-commercial-espionage-is-a-bad-idea-for-the-united-states/

When I was a young reporter in 1993 covering the final days of the Uruguay Round world trade negotiations in Geneva, I got a strange phone call in my hotel room from one of the lobbyists for a big U.S. engine manufacturer. The question of whether government subsidies for aircraft engines would be restricted under the new World Trade Organization rules was one of the big, outstanding issues for the United States and the European Union nearing the end of the negotiations. The U.S. companies – Pratt & Whitney and General Electric – were worried that new rules favored by the EU to curb subsidies could restrict their ability to spin off commercial products from work on Pentagon military contracts, and benefit rival Rolls-Royce, the UK engine maker.

The caller told me in a slightly threatening voice that “we know you’ve been talking to X”, a reference to a senior WTO official who had indeed been an anonymous source of mine. I neither confirmed nor denied, and later shrugged it off, assuming that he had simply inferred the source from my reporting, which had explained in some detail the substance of confidential negotiating documents whose content was not widely known. But it occurred to me later that perhaps my telephone conversations had been monitored, and that he really did “know” my source. After all, billions of dollars in commercial contracts could have been affected by the outcome of the trade negotiations.

I was thus not terribly surprised by revelations this week, apparently based on new leaks from Edward Snowden, that U.S. intelligence agencies may have bugged the Washington and New York delegations of the European Union, as well as EU headquarters in Brussels. EU leaders are warning that the spying may throw a wrench into ambitious plans for the Transatlantic Trade and Investment Partnership (TTIP) to lower trade and regulatory barriers to U.S.-EU commerce. German Chancellor Angela Merkl said that if the reports were true, such spying was “unacceptable Cold War behavior.”

My first reaction to this was to be to skeptical of the European protests. Michael Hayden, the former head of both the CIA and the National Security Agency, chided that “any European who wants to go out and rend their garments with regard to international espionage should look first and find out what their own governments are doing.” President Obama agreed: “That’s how intelligence operations work,” he said. “We should stipulate that every intelligence service – not just ours, but every European intelligence service, every Asian intelligence service, wherever there’s an intelligence service … here’s one thing that they’re going to be doing: they’re going to be trying to understand the world better and what’s going on in world capitals,” he told a press conference during his African trip. “If that weren’t the case, then there’d be no use for an intelligence service.”

But on reflection, outrage is the more the appropriate response. First, the Europeans are among the closest of U.S. allies, and such spying compromises the trust on which that relationship is based. The current trade negotiations are going to involve difficult, sensitive issues in which the leaders of each country are going to have to overcome domestic protectionist interests and considerable public skepticism. The erosion of trust that has now occurred will make that job harder, and make a successful conclusion of the talks less likely.

Second, since the United States and Europe do not threaten each other’s security, the rationale for the spying was presumably economic and commercial. It is one thing to gather clandestine intelligence to thwart threats to national security; it is quite another to spy in order to gain commercial advantage. This is not a game the United States should be playing. Other countries, notably China, have far more to gain from this sort of espionage than does the United States. The United States remains the world’s economic and technological leader, and rising economies have much to gain by stealing trade secrets or other information of commercial value. President Obama’s “everyone does it” response utterly undercuts efforts by U.S. companies and his own government to discourage such espionage by China and other countries. The United States should be taking the lead internationally in trying to stop commercial espionage, not using its advanced capabilities to carry it out. But following these revelations, the Chinese can be expected to ignore future U.S. complaints as rank hypocrisy.

Finally, even if real commercial intelligence is gathered, the U.S. government has limited ability to make use of it. For a country like China, which is still dominated by state-owned enterprises, the fruits of spying can fairly easily be passed along to state companies. But what is the U.S. government to do with such information, in an economy dominated by competing private companies whose national ties are growing looser and looser? Two decades ago it might have made sense, for example, for the government to bug a reporter’s telephone in order to gain intelligence that might help the American companies (GE, Pratt) against a European rival (Rolls-Royce). But today, Rolls-Royce builds more products in the United States than it does anywhere else in the world. And GE now earns 60 percent of its sales revenue outside the United States. So which companies should be the beneficiary of U.S. commercial espionage?

It’s quite possible, of course, that my telephone was never bugged; it’s also plausible that there is less than meets the eye in Snowden’s latest revelations. But the U.S. government response is troubling. Instead of defending its actions, if the allegations are true the United States should apologize to the Europeans, and get out of the game of commercial espionage.

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