“A reasonable and balanced trade agreement with the United States”. With these words, the president of the European Commission, Jean-Claude Juncker, describes how this treaty must be shaped, which represents one of the priorities of the new Commission. If an agreement is reached, the future Transatlantic Trade and Investment Partnership (TTIP) would create the biggest free trade area of the world between two economies that accounted together for around 60% of world’s GDP and an annual value of transatlantic trade of 960 billion Euros.
During TTIP negotiations, the debate on its advantages and inconvenients is present in the European society, a discussion which does not exist in the United States yet. US Ambassador to the European Union, Anthony L. Gardner, although he does not dismiss the idea that concern could rise in American society when further details on the negotiations are provided, he recently stated that in the United States, “the idea of signing a free trade agreement with a region with which we share values is not controversial“.
Why the TTIP?
Although the idea of such as EU-US agreement was already discussed in some political, academic and business circles, it was in 2011 that the so called High Level Working Group on Jobs and Growth was constituted, chaired by EU Commissioner for Trade and US Trade Representative. This Group had the aim of identifying what kind of partnership could be established between both the European Union and the United States and which opportunities and difficulties could arise. This Working Group concluded advocating an agreement involving all economy sectors in order to intensify trade and boost both economies. It also recommended the opening of negotiations. The economic crisis and the stalling of multilateral negotiations in the framework of the World Trade Organisation (WTO) encouraged the launch of TTIP negotiations.
Removing trade barriers in a wide range of economic sectors is one of the main objectives of current negotiations. After the impact assessment, where the EU has examined diverse levels of trade liberalisation, the European Commission has concluded that “the more liberalisation there was, the better the overall result“. There are tariffs, unnecessary rules and bureaucratic hurdles that TTIP would remove, making easier investment in the transatlantic framework and simplifying purchases, sales and services between the European Union and the United States. In addition to trade purposes, the investment of companies in both economies is also an objective of negotiations.
Economy does not seem the only reason for the signature of the TTIP, but also geopolitics. The Asia – Pacific region is displacing the Atlantic as the centre of gravity of global economy due to the increasing protagonist role of emerging powers, which does not accept anymore the guidelines and hegemony of the most economically advanced countries. The researcher of the Spanish think-tank Elcano Royal Institute, Federico Steinberg, states that the TTIP can be seen “as an instrument to recover leadership and, therefore, to achieve greater influence on the international economic stage“. This leadership cannot be regained in the framework of the Doha Round, that is why he adds that the global trade scenario could be fragmented in major rival blocs in detriment to WTO multilateralism.
What is the main TTIP content?
Even if negotiations are dealing with a large number of issues, the main elements of the agreements are the following:
– Market access: Even if transatlantic tariff barriers are currently relatively low (5,2% in the EU and 3,5% in the US), eliminating tariffs will save considerable costs due to the magnitude of trade between the EU and the US. The reconciliation of the EU and US approaches to rules of origin, opening a dialogue on anti-dumping measures and their services sectors, as well as new markets such as in the transports sector, are also objectives of the TTIP. The European Union wants professional qualifications to be recognised in the United States and the fact the European companies can operate under the same conditions as American companies. Investment is a fundamental aspect in the TTIP. The transatlantic partnership wants to achieve the highest levels of liberalisation and investment protection, including guarantees of protection against expropriation, rules of free transfer of funds, as well as a investor-to-state dispute settlement with safeguards to avoid any abuses and to safeguard the right to regulate. Finally, the access to government procurement markets for European companies is also a European objective to include in the TTIP.
– A more integrated transatlantic marketplace: Unnecessary costs and procedures for the homologation of products for the exports want to be avoided, respecting the standards in fields such as health, security, consumers and environment. Moreover, regulatory compatibility in other specific sectors (chemical, automotive, pharmaceutical, ICT, and other health sectors) is intended to be negotiated.
– More cooperation to establish international standards: Although harmonisation in terms of intellectual property protection is not an objective, divergences want to be addressed. Social and environmental aspects of trade and sustainable development are also intended to be on the negotiations table.
Difficulties during negotiations
In June 2003, the Council gave green light to the European Commission to establish negotiations with the United States. EU Commissioner for Trade (Cecilia Malmström, who has succeeded Karel de Gucht in the EC) represents the EU in the negotiations. The Commission will keep the European Council and Parliament informed during negotiations, which will need to vote at the end so that the agreement can be adopted.
Among the problems that are arising during negotiations, public procurements are one the difficulties. In the US, domestic companies are protected by law in detriment to foreign companies. As a result, before a bidding process, companies willing to participate in such a process must be established in the US and ensure that a certain quantity of the value of procurement is American. The EU aim is to ensure that European companies are treated as Americans in the US.
Negotiations are not easy either regarding financial services. The EU chief negotiator with the United States, Ignacio García-Bercero, defends the incorporation of financial services in the TTIP and a closer cooperation between EU and US regulators. He also advocates the mutual recognition of equivalences in the financial sector, even if he insists that “American position is still quite reluctant“.
What are the benefits for the European Union?
According to the study “Reducing barriers to Transatlantic Trade” by the Centre for Economic Policy Research (CEPR), the European Union could annually benefit by 199 billion Euros thanks to the TTIP (€95 billion in the US), equivalent to 545 Euros for an average EU household (€655 in the US). This study also adds that incomes are the consequence of an increase of bilateral trade. EU exports to the US would grow by 28%, which means an export value of European goods and services of additional 187 billion Euros. The reduction of non-tariff barriers would be a fundamental part of the transatlantic liberalisation. Up to 80% of potential benefits would come from cutting costs imposed by bureaucracy and regulations, as well from the liberalisation of trade in services and government tenders. The CEPR explains in this report that the increase of economic activity and productivity will benefit EU and US labour markets in salaries and new job opportunities. Moreover, European GPD will grow between 0,5% and 1%.
Without any tariffs and other barriers to trade, Europe will sell and invest more in the US, which will enhance benefits for companies and, therefore, job opportunities will increase. Thanks to the liberalisation of trade, variety of products will become larger. That is why this increase of supply will imply a decrease of prices. European citizens will benefit of the advantages of free trade.
Doubts about the TTIP?
There are sectors in Europe showing some concern due to possible changes of existing EU standards of consumers, environment and health protection. There are people who wonder if the EU will be obliged to change regulation regarding genetically modified organisms (GMOs), and also how will TTIP affect to environment, or if US data privacy standards will prevail over EU standards. Taking into account this concern, the EU chief negotiator has clarified in an interview that “during negotiations there will be no reduction of protection standards in Europe, in terms of quality, consumers protection, environment protection, privacy or any values included in the EU regulations”. Also Juncker has clearly stated that “I will not sacrifice Europe’s safety, health, social and data protection standards or our cultural diversity on the altar of free trade“. Moreover, even if the Commission is the institution that negotiates the agreement, EU Member States and the European Parliament will have the last word on the TTIP. With regard to the concern on GMOs, although agriculture is included in the TTIP negotiations in order to increase sales of agricultural products without any barriers, the EU chief negotiator has discarded changes in EU regulations on GMOs.
The European Commission has made clear that existing levels of protection will be not negotiated. Furthermore, this institution explains that seeking more compatible regulations between the EU and the US means studying where both regulations diverge unnecessarily instead of looking for the lowest common denominator. That is why the Commission defends that “each side will keep the right to regulate environmental, safety and health issues at the level each side considers appropriate“.
Part of the European society is concerned about the Investor to State Dispute Settlement (ISDS). US Ambassador to the EU denies that companies usually win in detriment to States and that this mechanism interferes with the right of countries to regulate. “ISDS enables the investors to make use of it in case of expropriation, a process without any guarantees or when the investor has not been fairly and equitable treated“, Anthony L. Gardner explains.
As TTIP implies considerable consequences for Europeans and Americans, transparency in the TTIP negotiations is fundamental. Therefore, EU Commissioner for Trade advocates that TTIP negotiations “needs to be negotiated openly and transparently; consumers, workers, environmental activists, entrepreneurs, private citizens and the people’s representatives must have a chance to comment“. To that end, the Commission is committed to publish the proposals of the European Union as well as the documents related to TTIP negotiations.
Taking into consideration the EU and US economies, a harmonisation of their regulations could provide the basis for “world standards”, as third countries could be interested in adopting those regulations, simplifying and facilitating world trade. These standards could involve some areas, such as services, that WTO has not reached yet. This organisation could be inspired in the future by the TTIP standards in order to make some steps forward, but emerging countries will be strongly reluctant to adopt the transatlantic standards.
Which is clear is that the TTIP will redefine the international stage in economic and geopolitical terms. After years of relative decline of transatlantic influence and the increase of importance of powers such as China, India, Russia and Brazil, the pragmatism of both the EU and the US has led to the willingness of reinforcing the transatlantic link through this trade and investment partnership, whose negotiations are in the international spotlight.
Author: Rubén Ruiz Calleja