An attempt to create a free trade area between the European Union and the United States was officially launched at the G8 Summit in Northern Ireland in June 2013. The project is called “TTIP” – the Transatlantic Trade and Investment Partnership. President Obama, Chancellor Merkel and Prime Minister Cameron are key supporters. But after one year of negotiations and debate, is TTIP likely to get off the ground? Dennis Novy argues that TTIP is a long-run project that will likely take several years to complete. It might falter if there is not enough political support from the top echelons of government

Novy, Dennis

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blogs.lse.ac.ukhttp://blogs.lse.ac.uk/usappblog/2014/07/21/ttip-has-the-potential-to-be-a-forum-which-sets-21st-century-trade-rules-but-needs-more-attention-and-support-from-the-highest-levels-of-government/TTIP has the potential to be a forum which sets 21st centurytrade rules, but needs more attention and support from thehighest levels of government.An attempt to create a free trade area between the European Union and the United States wasofficially launched at the G8 Summit in Northern Ireland in June 2013. The project is called “TTIP”– the Transatlantic Trade and Investment Partnership. President Obama, Chancellor Merkel andPrime Minister Cameron are key supporters. But after one year of negotiations and debate, isTTIP likely to get off the ground? Dennis Novy argues that TTIP is a long-run project that willlikely take several years to complete. It might falter if there is not enough political support from thetop echelons of government.If successfully concluded, the Transatlantic Trade and Investment Partnership (TTIP) would be the most ambitiousfree trade agreement in history. This is partly because of its sheer scale – the European Union and the UnitedStates represent about 45 percent of global output. It is also partly because of the attempt to tackle non-tariffbarriers and regulation. As a mega-deal, TTIP is potentially a game changer for 21st century trade.The UK House of Lords recently published and debated a report on TTIP on the basis of an in-depth investigation.While the potential benefits from liberalised transatlantic trade could be large, the road will be long and arduous,and many difficulties will have to be overcome.Winners and losersA study produced by the Centre for Economic Policy Research indicates that in the best-case TTIP scenario, theaverage EU household of four could see its disposable income rise by €545 per year by 2027 as a result of lowerprices and higher productivity. But the degree of uncertainty involved in such predictions is immense, not leastbecause they depend on the extent of the agreement. Will there be a comprehensive agreement with full-fledgedliberalisation of non-tariff barriers, or a ‘light’ agreement with not much more than a cut in tariffs?We probably have a better sense of the cross-industry gains and losses. It is likely that the car industry stands togain considerably from TTIP on both sides of the Atlantic. Not surprisingly, it is one of the best organised industriesin relation to TTIP. In the case of the UK, other industries likely to gain include chemicals and the pharmaceuticalindustry.But even if we believe that TTIP would be beneficial for countries and consumers as a whole, there will inevitablybe losers. For example, highly protected sections of the Mediterranean agricultural industry might shrink once theirtariff and non-tariff barriers are removed. It is unclear how governments envisage mitigating the adverse effects.Losing the public debate In any case, cold numbers will not win the hearts and minds of the electorate. The potential benefits of TTIP arelikely diffuse, while costs will be concentrated. The lack of transparency creates further suspicion. Governmentshave to come up with much more convincing narratives and concrete examples if they want to sway the publicdebate. At the moment, in most EU countries there is either no debate about TTIP, or a debate that centres oncherry-picked items such as chlorinated chicken. It seems that governments across the EU are currently losing thepublic debate.Communication cannot be left to the EU Commission alone. Governments should engage more with their nationalelectorates, and this engagement needs to happen at all levels of government, not only through trade andeconomics ministers. A number of difficult issues stand out. They include:Regulation and non-tariff barriers: The meat of the TTIP negotiations is not about tariffs but rather about aligningregulation and removing non-tariff barriers. A classic example is car safety regulation. There is no evidence thatcars are less safe in either the EU or the US. However, car manufacturers currently have to comply with twodifferent sets of regulation. Removing duplicate regulation would bring down production costs and arguablyconsumer prices, even if this does not automatically generate new trade. While car safety is a common senseissue, negotiators face many controversial issues such as food safety regulation.Agriculture: Agriculture is traditionally a contentious area. For example, not all geographical indications such asParma ham and champagne will be recognised by the US. Meat exports are another difficult issue.Government procurement: Fair and open access to government contracts is supposed to be an essential part ofTTIP. But access is especially difficult to obtain at the sub-federal level where national governments might haveless power to legislate. Some promising progress has recently been made by the EU on that front in the proposedComprehensive Economic and Trade Agreement (CETA) agreement with Canada.Investor-State Dispute Settlement (ISDS): ISDS turns out to be a particularly contentious issue in the Europeandebate. In particular, a hostile stance has been adopted by the German government and large parts of the Germanpublic. Perhaps not surprisingly, ISDS is also an issue where a great deal of misinformation is inserted into thepublic debate. At its core, ISDS is only an enforcement mechanism. What matters more are the substantiveprotections afforded to foreign investors in the TTIP investment chapter. Nevertheless, there is considerablepressure on the EU to drop ISDS from the negotiations. But given that the EU typically insists on ISDSmechanisms when negotiating trade agreements with lower-income countries, it would smack of hypocrisy tooppose them when negotiating with the US.Financial services: Financial services are a priority for the UK given their weight in the British economy. However,the US Administration strongly resists the inclusion of financial services under the TTIP umbrella, partly because itis occupied with implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.U.S. Department of Agriculture (USDA) Secretary Tom Vilsack and officials, meet with Denmark Minister for Food, Agriculture and Fisheries DanJørgensen and the delegation of Peter Taksøe-Jensen, Danish Ambassador to the United States; for Transatlantic Trade and Investment Partnership(TTIP) negotiations, on Tuesday, July 8, 2014, in Washington, D.C. Credit: US Department of Agriculture CC BY 2.0Geostrategic considerations: Writing the rules of 21st century tradeInternational trade in the modern world is increasingly about ‘making things’ and no longer as much about ‘sellingthings’. The rise of outsourcing, back-and-forth trade and global value chains have fundamentally transformedinternational trade and foreign direct investment (FDI). Governance and regulation is needed to facilitate thesetrends.Given the enormous size and clout of the EU and US, TTIP might be a forum where 21st century trade rules areset. TTIP is supposed to be a ‘living agreement’ that creates a permanent dialogue for the future where newregulation is discussed and implemented. In that sense, TTIP is not only an economic but also a political project topromote transatlantic ties. Given the rise of emerging economies, TTIP might be the last opportunity for individualEU member countries such as the UK to have a major impact on setting high-standard global trade rules. Theprice of failure might therefore be high.Parallel developments and the role of ChinaThe US is currently also negotiating TPP – the Transpacific Partnership – that includes 12 countries in total (US,Canada, Japan, Australia, New Zealand, Singapore, Malaysia, Brunei, Vietnam, Chile, Mexico, Peru). TPP is seenas more difficult politically since it involves low-wage countries such as Vietnam. Issues of labour andenvironmental standards are likely to come up. But these play less of a role in the TTIP negotiations with the EU.It has been suggested that TTIP and especially TPP are designed to contain China, or at least to encourage Chinato engage more actively in global trade initiatives. TTIP should not be a closed shop. Third countries should beallowed to participate, and appropriate arrangements need to be discussed.Political uncertaintyTTIP involves an enormous political agenda and would be difficult to handle even in the best of circumstances.Additional complications are manifold given the changing political landscape on both sides of the Atlantic. In theEU, the European elections have given rise to an EU Parliament that is likely less friendly towards internationaltrade and investment. It is unclear what stance the future EU Commission will take in the ongoing negotiations.On the US side, the midterm elections in November 2014 have taken momentum away from the TTIP agenda. TheUS Administration is yet to secure Trade Promotion Authority (TPA) from Congress. Without TPA, the USAdministration cannot make serious negotiating offers. If no major progress is made in the narrow window ofopportunity after the US midterm elections in late 2014 and before the presidential election cycle kicks in, then wemight not see a successful conclusion of TTIP until 2017 or even 2020.How can the academic literature contribute?Evidence on the causal effects of trade agreements is hard to produce. Nevertheless, there is strong demand forhigh-quality academic work. For instance, it is frequently claimed that trade liberalisation leads to lower consumerprices. While it is easy to write down theoretical models with this result, it is harder to convincingly show this in thedata. Prices can move for dozens of reasons, and international trade is only one potential factor.Furthermore, there is not enough focus in the academic literature on non-tariff barriers. These are typically muchharder to measure than tariffs, but businesses clearly perceive them as the biggest impediment to free trade.Finally, some aspects of political economy have received relatively little attention in the trade literature. Forinstance, sometimes there is a mismatch of negotiators from both sides. Many negotiators on the US side tend tobe ‘technocrats’ – often lawyers – who have in-depth expertise on specific issues such as regulation. In contrast,their EU counterparts might be political appointees who delegate specific issues to expert aides. As a result, it canbe hard to make substantive progress.TTIP has the potential to benefit millions of consumers. It goes far beyond an economic project. Its currenttimetable seems ambitious. Without considerable attention and support from the highest levels of government itwill be hard to lead TTIP to a successful conclusion any time soon.Please read our comments policy before commenting.Note:  Dennis Novy was the Specialist Adviser to the UK House of Lords on TTIP. T his article gives the views of theauthor, and not the position of USApp– American Politics and Policy, nor the London School of Economics, nor theHouse of Lords. Shortened URL for this post: http://bit.ly/1zXCntN______________________About the authorDennis Novy – University of Warwick and LSE Centre for Economic PerformanceDennis Novy is Associate Professor of Economics at the University of Warwick. He is also aresearch affiliate at the Centre for Economic Policy Research (CEPR) and an associate at theCentre for Economic Performance (CEP) at the London School of Economics. He received a PhDfrom the University of Cambridge in 2007 and works in the fields of international trade,international economics and macroeconomics. Dennis has been a recent visitor at the FederalReserve Bank of New York, the Federal Reserve Bank of St. Louis, the University of California,Davis, and the University of International Business and Economics in Beijing. In 2013/14 Denniswas the Specialist Adviser to the House of Lords for their inquiry into the Transatlantic Trade and InvestmentPartnership (TTIP). Dennis has also worked on projects for the Department of Business, Innovation & Skills.CC BY-NC-ND 3.0 2014 LSE USAPP

TTIP has the potential to be a forum which sets 21st century trade rules, but needs more attention and support from the highest levels of government

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