The origin of free trade agreements between the USA and EU can be traced back to the rift between the two following the end of the Cold War. The first attempt made was the Trans-Atlantic Free trade agreement, but owing to the success of General Agreement on Tariff and Trade in the Uruguay Round in 1994 and the subsequent formation of WTO (World Trade Organization), it took a backseat. However, following their failure to advance key interests in WTO’s Doha Rounds in 2001 and the overall failure of the talk acted as an impetus for the transatlantic blocs to reboot their free trade negotiations in the shape of TTIP.
The Transatlantic Trade and Investment Partnership (TTIP) is a joint political project for creating a bilateral trade agreement between the US and the European Commission for which negotiations were launched in 2013. Its aim is to consolidate the European and the US markets and create a single market with inter-operability through increased cooperation, convergence of regulatory norms and reduction of NTB (Non-Tariff Barriers), TBT (Technical Barriers to Trade) and reduce leakage in supply chain security and increasing or enhancing goods maneuverability and ad valorem price and reducing wastage of economic resources in paying for custom duties and border controls costs. There is a sincere attempt in this project to reduce and eliminate similar but conflicting standards of regulations which can lead to reducing goods inefficiency and competitiveness in export trade, economic stagnation and higher consumer prices due to removable delays. The negotiators concluded the 15th round in October 2016 and the deal is still far from being signed and then the ratification process by US Congress and the (until now) 28 Parliaments of the member states and the European Parliament. The worst part of the deal for the governments and the people benefitting from this future deal is that, there is no consensus among the EU states, US government and the people of both the blocs, which is leading to the fierce debate on the utility of the deal.
The Utility of the deal and the opportunities it offers
One of the important questions is what is the utility of the deal and why is it so important? The U.S.-EU Joint Report on TTIP Progress till date states that the transatlantic agreement will create an ambitious, comprehensive, balanced high standard agreement which will be built on the already existing economic relationship between the two and hence benefits the common people by putting all the stakeholders on the path of growth, jobs and raising the average living standards. The economic rationale behind the deal is stated by quoting various figures which try to portray the deal between the two major trading partners as historic due to the linkage of jobs in the member states. Secondly, the European Commission’s report states that, 200,000 SMEs (Small and Medium Enterprises) are linked to this export trade and this deal will help them. Thirdly, the US and EU account for 23% of the total World GDP and 47.4% of the World Trade, possess 58% of the total world wealth in the households and 83 of the top 100 TNCs (transnational corporations) are located in these regions. So this deal is expected to lead to a win-win situation for all and establish an ‘Economic NATO’.
There is more to this story as we have both visible or stated objectives and invisible or unstated objectives behind this future agreement in progress. The visible objectives include reduced costs and more competitive markets by reducing competitive regulatory norms in sectors like automotive machinery, chemicals etc. and then setting the rules of the game by codifying international trade rules and standards which will have to be followed by the entire world as US-European mutual investment amounts to millions of dollars and represents 57% of the inward stock of FDI (Foreign Direct Investment) and they have a strategic leverage in all the global policy-making forums. It further argues that it will lead to greater consumer protection and welfare due to the increased competition from lower regulatory approvals and a greater health and safety standards but the debate of whether it is a ‘race to the top’ or the ‘race to the bottom’ is still in vogue. Thirdly, TTIP will lead to better supply chain security of goods with better compliance with the trade partnership agreements like C-TPAT and AEO. (Customs Trade Partnership against Terrorism and Authorized Economic Operator Scheme of World Customs Union). On the other hand, the invisible arguments are on the issues of energy security, geopolitics, and strategy.
A sneak-peak into the Offence and Defense through the Challenges
The challenges which the deal has to face are myriad and varied as there are so many divisions at so many quarters. At first, one can look at the challenges sector-wise which can display key sectors region wise (US & EU) have both offensive and defensive interests. We have nine sectors on which negotiations were going on in the 15th round and these sectors have been mutually agreed for cooperation which are Pharmaceuticals, Cars, chemicals, cosmetics, Information and Communication Technology, Pesticide, Engineering, Medical Devices and Textiles and Clothing (T & C).
The offensive interests for European Union or the Defensive interests for the USA and the Defensive interest of EU or offensive interests of USA are mutually complementary at times. They are in the arenas of
- Regulatory Cooperation: This is the most important area of focus to bring about standardization and reduce unnecessary imitation, difficult compliance rules, lack of trust, different procedures to the same. This regulatory compatibility remains an important issue for policymakers on both sides of the Atlantic as both claim their SMEs lose out in competition and fail to engage with each other due to NTBs and TBT and hence we should tap this untapped potential. The Regulations in various sectors like Textiles and Clothing, Automobiles, Pharmaceuticals, Cosmetics, ICT, Engineering etc. are different due to their faith in divergent regulatory philosophies. EU follows a ‘Precautionary Principle’ based approach where EU decides the severe levels of regulations on the basis of potential harmful effects due to lack of scientific knowledge, research or dilemma in findings to avoid and block any type of experiments involving any risks.
- ISDS Issue: – The second major challenge for TTIP to address is the Investor-State Dispute Settlement (ISDS). Initially, both EU and USA were very eager to include ISDS within TTIP, at length. Predominantly the big business on both sides of the Atlantic voiced in their favor for this provision, but the SMEs were skeptical from the very beginning. Supporters are of the view that omission of this would deprive the investors in a foreign land from a fair trial and they might fall prey to petty governmental politics. Although initially favoring it, in 2014 EU owing to public opinion decided to exclude TTIP temporarily.
- Agriculture trade: – The longest standing issue between the two Grand allies is that of confrontation over agricultural trade, the first explicit one being the Chicken War of 1963. Initially, the conflict revolved around tariff issues, but in recent decades, it has shifted to the Non-tariff barriers-posing a serious challenge for the TTIP negotiators. In this regard, various grounds can be illustrated. The tension over Chlorine Wash Chicken, the import of hormone-treated beef (HRB) in the 1980s, the Grade ‘A’ Pasteurized Milk Ordinance, GI (Geographical Indication) and GM (Genetically Modified) issues.
- Public Procurement: – This is a major contentious issue and continues to remain a major Offensive interest for EU due to the obvious reason of 17% of EU’s GDP comes from public procurement markets. As both USA and EU are signatories of the WTO’s Government Procurement Agreement, both have legally binding obligations to give each other mutual access rights to the procurement But EU complains are founded on two grounds –Firstly, USA restricts access rights for EU companies to invest in their markets by using laws such as the Buy America Act and Berry Amendment where the government privileges US companies. Secondly, EU contends that the USA does not provide transparent non-discriminative coverage at the sub-federal levels and US investment procedures require EU corporations to have a presence in US markets through joint stock holdings of US companies or local affiliates.
- GI Mark: – The Geographical Indication (GI) Mark is a contentious issue as EU follows a unique GI system to protect and register its own products to identify them in their own internal markets and markets of countries with whom it has signed an FTA (Free Trade Agreement). USA does not respect this system and claims many items given the highest level of protection through the GI mark (Protected Designation of Origins) are common names and subject to emulation.
- Chemicals:- The chemical sector for EU is an offensive sector as the tariffs on imports from EU to the US are high and they want it to be reduced. The EU has defensive interests in maintaining its own environment and consumer safety standards which are areas of contention for US industries as EU regulations on registrations, evaluation, authorization, and Restrictions of chemicals are high and non-negotiable.
The Uncertain Climate
The story of TTIP is a story of conflict and convergence. Initiated under the Obama administration, following the election of Donald Trump in 2016, the ambitious Trans-Atlantic trade agreement has been pushed into the doldrums. Owing to Trump’s nationalistic surge and his Make America Great Again policy, the global society has off-late witnessed the USA withdrawing from various such international agreements. Moreover, the recent global trade war commenced by Trump with countries including those of EU has led to a wave of retaliatory tariffs by both the blocs making the success of TTIP, bleaker.
Although TTIP has high sounding and ambitious goals, we need to understand, these goals can only be achieved by creating a global framework of norms which could be detrimental to the interests of the developing countries like Ghana and emerging countries like India. Or secondly, there is a high probability of the European markets getting flooded with cheap clothing, engineering, automobiles, cheap education, medical and water distribution sectors due to the removal of anti-dumping duties which can strategically stagnate these sectors and take the European companies out of business which they have failed to notice in their euphoria of sealing a historic deal. Thirdly, capitalism has its own charm and it will always propel all countries to search for profits driven by the urge to seal deals, where state represents the interests of the dominant elites, in this case, the global TNCs with deep political and social linkages. Fourthly, President Trump’s views on TTIP remain elusive and wavering. So, the question that remains is how inclined is the US to see the agreement come through. Besides, the absence of “Fast-track authority” from the US Congress makes the TTIP look like a great utopian Transatlantic dream which will never see the day from the scrap heap of history.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of The Geopolitics.
The authors are postgraduate students in Political Science with specialization in International Relations, Jadavpur University, India.