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Transatlantic Trade Partnership

Questioning the Transatlantic Trade Partnership

By Pierre Defraigne

18 June 2013

On the 14th of June, the EU Council of Ministers will likely issue a mandate to the
Commission for the negotiation of a Transatlantic Trade and Investment Partnership (TTIP)
with the US. The TTIP comes at the end of a succession of bilateral free-trade deals
concluded between the EU and emerging economies yet its features and implications are quite
different to former such agreements. On these grounds there is undoubtedly a need for an in-depth political debate on the issue.

The TTIP: a destabilising deal

It is important to acknowledge the distinction between the TTIP and previous bilateral trade
agreements. Firstly, there is a power asymmetry between the US and the EU. The partnership
is between a large, fully-fledged and united player on the one hand, and a player of
comparable size, but still nursing an incomplete single market, an unbalanced euro zone and a
nascent foreign policy falling short of a common defence system on the other. Secondly, the
TTIP goes far beyond a classical FTA since most tariffs are already low except for agriculture
and a number of specific industrial products. The TTIP seeks mainly to eliminate Non-Tariff
Barriers, such as diverging norms and standards, licencing requirements, customs
administration, increased access to public procurement markets and statutory restrictions on
trade in services. Although this means that the negotiations will centre on a very broad range
of issues, a major focus will be on regulatory convergence which directly impacts collective
preferences and societal values such as environment, consumer protection, health, toxicity of
financial products, data privacy, and multifunctional agriculture. Thirdly, due to the joint size
of the two partners, together representing 40% of world trade, the TTIP will change the
balance of the WTO multilateral system. Lastly, the convergence process might weaken the
cohesion of the strategic Atlantic Alliance.


Modest and unevenly-distributed growth

One particular reason for the endorsement of the TTIP is its potential to promote growth and
employment. Estimates put the additional growth generated by the TTIP between 0.5 and 1%
of European GDP and job creation at a million. Due to the fact that the US and the EU are
relatively similar large economic zones, but suffering from high structural unemployment, the
business alliance between the two areas in crisis is likely to generate only marginal growth,
obtained through a laborious and politically costly regulatory convergence. Furthermore,
distributional costs – jobs lost against jobs gained between and within Member States – will
be disproportionate to the expected growth rates. The EU lacks a powerful fiscal instrument to
correct these inequalities between regions and social groups. Divergences between Member
States are already critical within the euro zone, especially between the core and the periphery.
The TTIP will only aggravate the situation.


Dilution of European identity and US dominance

Since the venture, which Karel de Gucht terms “a transatlantic internal market”, focuses
predominantly on regulatory convergence, the question lies in how the EU, with its current
level of heterogeneity can reconcile a move towards the promotion of its own identity and
unity with the transatlantic harmonisation of norms and standards, considering that the US’s
bargaining power greatly outweighs the EU’s still-limited harmonisation of norms and
standards. Powerful business lobbies from sectors such as energy, finance, the digital and
defence industry, will play a decisive role in the final outcome as will the strategic pressure
coming from Washington which cannot be ignored specifically because of its ability to divide
and rule European Member States. Moreover, the US can rely on their Asian network – the
Trans-Pacific Partnership – to put more pressure on an isolated Europe with regard to the
adoption of common norms and standards.


The compatibility of key policies: currency, energy, defence industry, agriculture

Further questions arise as to whether a single transatlantic market can truly be consistent with
two monetary policies implying two international currencies, with two energy policies, one
greener than the other and therefore more costly. Concerns are also voiced about whether a
single transatlantic market can function consistently when considering the existence of two
competing defence industries (one with a big buyer and the other with several smaller
equivalent buyers). Can two agricultural policies, both heavily subsidised, allow for a degree
of trade liberalisation compatible with Article 24 of the WTO? Such questions demonstrate
the difference in economic systems between the EU and the US. The issue lies not only in the
potential feasibility of the TTIP but also whether the venture is worthwhile considering the
price to EU unity and to the precious ‘European preference’ for the EU’s re-industrialisation.


A shift from multilateralism towards the formation of economic blocs

The TTIP goes against the spirit of multilateralism. A scenario in which two big trade powers
conclude preferential agreements would be perceived as a way of imposing views on the rest
of the membership. Such a state of affairs undermines the most advanced pillar of multilateral
governance, i.e. the WTO, which has already been weakened by a flurry of bilateral deals
leading to the ‘spaghetti bowl’ of rules of origin hardly compatible with the concept of a
global output chain.

The impact of the partnership on China according to an editorialist of Le Monde, who terms
the TTIP an “economic NATO”, aims to hinder the growing potential of China in the area of
norms-setting. For its part, through the promotion of non-tariff barriers China is following the
US’ infant industry strategy, which the US used in the 19th century to develop its domestic
market behind high tariffs. China aims at using norms and standards as a way to facilitate
Chinese firms’ climbing the technology ladder. The existence of such a policy margin might
bother US and EU firms, but conflict of norms can be bypassed by cross-investment between
the EU and China as it is today with massive cross-investment between Europe and America.
This would indeed represent a practical and reasonable solution. Yet it would justify
compensations from Beijing to Brussels.


China’s containment

US use of the TTIP and of the TPP to contain China’s strategic rise by controlling its exportled
growth would re-open competition between blocs. A shift from a multipolar world to a
bipolar one based on economic competition would eventually lead to strategic confrontation.
Should the EU really run the risk of departing from multilateralism, a practice which is deeply
rooted in the EU’s international relations doctrine, when the consequence would involve
being sucked into a containment strategy in which it would be instrumentalised?
All these questions call for serious answers whose magnitude and depth greatly contrast with
the levity and speed of the draft on the table of Ministers. Policy-makers should take the time
to consider the existing issues and find a way to solve them. Some key questions to consider
include: What sort of world does the EU wish to live in? What degree of singularity for
Europe? What degree of unity for Europe and what degree of autonomy?


Building tensions within NATO

The main paradox of the TTIP is that it might just undermine NATO, an organisation that
represents a key common public good for the EU and the US-provided responsibility for
NATO is based on equal partnership with fair defence burden-sharing. The TTIP negotiations
will generate tensions in public opinion, stirring up anti-American feelings among the
European population hit by rising unemployment and increasingly sceptical views about the
ability and wisdom of the EU to cope with a persistent low-intensity crisis.


Conclusion: working toward a high-level trialogue between US-China and EU

The TTIP might fail to take off because of its arduous nature causing negotiation of the
partnership to go on indefinitely. This is not unprecedented. Consequently the EU might
initiate a parallel trade negotiation with China beyond the intended investment Treaty in order
to create the political conditions for a trialogue between the three main economies. Due to the
creeping crisis concerning multilateral governance (Doha Round stuck, elusive climate deal
and monetary polycentrism), a trialogue which would force the EU to be on par with the other
players seems to constitute the most practical approach for placing the world economy back
on the path of sustainable growth. Such a trialogue would focus on three issues: on parallel
and compatible efforts to conduct respective macroeconomic policies including doing away
with excessive debt, working out domestic reforms specific for each country (eurozone
governance and social model, US fiscal cliff and China shift from export to domestic demand
to encourage growth) and finally the shoring-up and reshuffling of multilateral governance.