By Michael Landry, Transatlantic Economy Analyst
With the seventh round of talks for the Transatlantic Trade and Investment Partnership (TTIP) concluded on October 3rd, it is high time for an update on the controversial pact. While negotiations are expected to continue well into 2015, the TTIP recently gained influential support in Europe. Even if it gets to “yes” in the negotiations, however, it is still likely to face hurdles in the ratification process, as it has to pass through the U.S. Congress, the EU Council of Ministers, the European Parliament and potentially even EU national parliaments. Given the strategic importance of the trade deal, it is imperative that fear-stoking myths are confronted with facts and special interests give way to the public collective interest. Knowing how we got to this point is essential both for understanding the multifaceted potential of the TTIP and how the momentum for establishing a liberal model of global trade hangs in the balance.
Free trade agreements (FTAs) seem to be ubiquitous in the headlines as of late – there is, for example, talk of agreements between the U.S. and several Asia-Pacific countries (the Trans-Pacific Partnership), the recently completed pacts between Canada and the EU and Canada and South Korea, as well as smaller agreements between the EU and several African states. Since the collapse of the Doha Round of WTO negotiations, countries have increasingly turned to more geographically limited free trade agreements to facilitate further trade liberalization. Some of the credit for the impetus for the largest and most significant proposed FTA, the TTIP, belongs to German Chancellor Angela Merkel, who expressed openness as early as 2006 to a transatlantic free trade zone. After considerable expert analysis, talks were launched in 2013.
So what might we expect from TTIP? While there are varying estimations and full details will not likely be known until the agreement is finalized, declared objectives shed light on what impact the proposed partnership may have. In May, the European Commission released a report indicating the following areas are of key consequence – which is mirrored on the U.S. side:
Market access: Removing customs duties on goods and restrictions on services, gaining better access to public markets, and making it easier to invest.
Regulatory component: Improved regulatory coherence and cooperation by dismantling unnecessary regulatory barriers such as bureaucratic duplication of effort.
Rules, principles and modes of cooperation: Improved cooperation when it comes to setting international standards.
Three recent major studies have dominated the debate surrounding the potential impact of the TTIP – namely those done by Bertelsmann/ifo, the Centre d’Etudes Prospectives et d’Informations Internationales (CEPII), and the Centre for Economic Policy Research (CEPR) – with the latter being prepared for the European Commission. The magnitude of economic impacts depends on how broad and deep the agreement between the two parties will ultimately be. Bertelsmann suggests that in the case of a limited agreement, more focused on tariff reductions, gains to GDP per capita would amount to 0.8% for the U.S. and 0.27% for the EU. If an ambitious agreement is achieved, however (what the study’s authors consider to be “deep liberalization”), U.S. and EU GDP per capita are projected to increase by 13.4% and 4.95% per capita respectively (within the EU, effects will be stronger in countries that do more trade with the U.S., especially Great Britain). The other two studies project lesser gains. CEPII estimates GDP gains ranging from 0.0% for both parties in the case of minimal liberalization (i.e. limited to tariff reductions) to 0.5% for both with more substantial liberalization and positive spillovers. CEPR puts GDP gains at 0.27% for the EU and 0.21% for the U.S. in the case of minimal liberalization and 0.48% for the EU and 0.39% for the U.S. in the case of deep liberalization.
While one aim of the partnership is to boost economic growth, the degree of interconnectedness that global trade has created undoubtedly means that TTIP would have effects beyond the transatlantic area. First, the rapid and sustained growth of non-Western economies, such as the BRICS, threatens, at least in part, to supplant the liberal democratic model for state and institution building. Policymakers in developing countries need only compare the relative economic malaise of the West with the growth of China to begin to feel pulled toward a more authoritarian and protectionist model. While structural reforms, and monetary and fiscal policies, have and continue to play an important role in the revitalization of Western economies, an ambitious TTIP agreement can smooth out the friction that trade barriers and regulatory inefficiencies often create. Reinvigorated Western economies can show that their model is not only relevant, but resilient.
Likewise, given that countries under the proposed TTIP agreement account for around 30% of global trade and nearly half of the world’s GDP, an ambitious reform of transatlantic trade may serve as a framework for future agreements between TTIP members and other states or even between non-TTIP states. There is no guarantee of this however, as it could very well go the other way – with standards being set so high that countries are dissuaded from even attempting to conform. Given certain trade and development-related missteps, many in developing countries look at Western-led initiatives with some suspicion and skepticism. A viable solution to set both a solid trade framework and avoid alienating developing countries is to provide “tiered integration,” whereby countries could gradually implement reforms needed to access incrementally more of the agreement’s tariff and non-tariff trade barrier reductions. Turkey, for example, has expressed strong interest in joining the TTIP talks; however, U.S. Secretary of Commerce Penny Pritzker recently ruled out including Turkey, citing needed reforms. Turkey is a particularly striking example of this predicament – it is integrated into the transatlantic security structure, NATO, but institutionally has been slipping further from the Western model. Incentivizing Turkey to make the necessary reforms using trade may anchor it more strongly to the West.
Though mollifying international concerns will be an important hurdle, the most critical step in getting to “yes” on the TTIP will be convincing Westerners themselves. Given the real economic and strategic benefits the partnership would provide, advocates of the TTIP must be vociferous in their support for the agreement, as certain aspects have conjured myths that need to be addressed. If the dialogue is dominated by unfounded concerns about “chlorine-washed chicken,” fear and discontent could lead politicians to oppose the pact to secure votes in the next election. Leaders on both sides need to focus on the benefits the agreement will procure, while making allowances for the protection of consumer choice. For example, instead of banning some American food imports, products perceived to be questionable can be labeled appropriately to allow European consumers to decide based on their own preferences. The public also needs to be made aware of how the agreement would benefit not only large corporations, but small and medium-sized businesses and households alike due to more market access and lower prices. While there will likely never be a “$0.50 TTIP discount” label on certain affected commodities, the history of trade agreements shows that these real gains are often overshadowed by reports of job losses. As with most policy decisions, there are “winners” and “losers,” but TTIP negotiators must ensure that the potential losses of a few are mitigated so as not to forego substantial gain for the many.
This partnership is a timely catalyst to reignite not only Western economies, but also Western leadership. Whether the transatlantic bloc will remain a relevant world player well into this next century is largely in the hands of today’s policymakers. Without determined leadership, the opportunity to guide global trade policy may be forfeited to the BRICS or others that may turn away from the West’s liberal rules-based structures. Likewise, prompt action to complete and implement the trade framework would encourage the expansion of the group’s membership – likely bringing in Canada, Mexico and the countries of the European Free Trade Association. Additional countries, such as Turkey, may be encouraged to make needed reforms to access the transatlantic market if credible commitments and incentives can be offered on the part of TTIP members. This partnership represents an auspicious, yet ephemeral, chance to restore confidence in transatlantic integration – to remember the hope with which the project began, and to shepherd it into the new century.