If successfully concluded, the Transatlantic Trade and Investment Partnership (TTIP) would be the most ambitious free trade agreement in history. Dennis Novy explains that while the potential benefits from liberalized transatlantic trade are large, getting there will be an arduous process and many difficulties will have to be overcome

Novy, Dennis

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blogs.lse.ac.ukhttp://blogs.lse.ac.uk/usappblog/2015/02/17/governments-have-to-come-up-with-much-more-convincing-narratives-and-concrete-examples-if-they-want-to-sway-the-public-debate-on-ttip/Governments have to come up with much more convincingnarratives and concrete examples if they want to sway thepublic debate on TTIP.If successfully concluded, the Transatlantic Trade and Investment Partnership (TTIP) would be themost ambitious free trade agreement in history. Dennis Novy explains that while the potentialbenefits from liberalized transatlantic trade are large, getting there will be an arduous process andmany difficulties will have to be overcome.A plan to create a free trade area between the European Union (EU) and the United States – theTransatlantic Trade and Investment Partnership (TTIP) – was officially launched at the G8 summitin Northern Ireland in June 2013. I was the specialist adviser on a recent parliamentaryinvestigation of the potential impact of TTIP and the likelihood that it will get off the ground.Winners and losersPartly because of the sheer scale of TTIP – the EU and the United States together represent about 45 percent ofglobal output – and partly because it will attempt to tackle nontariff barriers and regulation, the proposed megadealis potentially a ‘game changer’ for 21st century trade. But what would be its likely effects on Europe in generaland the UK in particular?A study by the Centre for Economic Policy Research indicates that in the best case TTIP scenario, the averageEU household of four could see its disposable income rise by €545 per year by 2027 as a result of lower pricesand higher productivity. But the degree of uncertainty involved in such predictions is immense, not least becausethey depend on the extent of the agreement: will there be a comprehensive agreement with full liberalisation ofnontariff 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 organized industriesin relation to TTIP. For the UK, other industries likely to gain include chemicals and pharmaceuticals.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 parts of the Mediterranean agricultural industry might shrink once theirtariff and nontariff barriers are removed. It is unclear how governments envisage mitigating the adverse effects.U.S. Agriculture Secretary Tom Vilsack greets Austrian Federal Minister of Agriculture, Forestry, Environment and Water Management Andrä Rupprechteahead of TTIP negotiations Jun. 16, 2014. Credit: U.S. Department of Agriculture (Flickr, CC-BY-2.0)Losing the public debateIn any case, cold numbers will not win the hearts and minds of the electorate. The potential benefits of TTIP arelikely to be diffuse while the costs will be concentrated. The lack of transparency surrounding the negotiationscreates further suspicion. Governments have to come up with much more convincing narratives and concreteexamples if they want to sway the public debate on TTIP. How would the average person benefit from this tradeagreement? Why is it in the UK’s long-term interest to engage in such negotiations?At the moment, in most EU countries, the debate centres on specific items such as whether Europeans will allowchicken to be washed with chlorinated solution (as practiced in the United States), or whether internationalarbitration panels as opposed to local courts will be allowed to resolve disputes. These issues are important anddeserve a proper public discussion. But in many cases, cherry-picked items have been hijacked by campaignerswith a certain political agenda. The public debate would benefit from a more diverse and balanced discussion thattakes account of arguments both for and against TTIP.Governments across the EU are broadly in favour of TTIP, but it seems that they are currently losing the publicdebate. Communication cannot be left to the European Commission alone. Governments should engage morewith their national electorates, and this engagement needs to happen at all levels of government, not only throughtrade and economics ministers.Important sticking pointsA number of difficult issues stand out, including:Regulation and nontariff barriersThe core of TTIP negotiations is not about tariffs but rather about aligning regulation and removing nontariffbarriers. A classic example is car safety regulation. There is no evidence that cars are less safe in either the EU orthe United States. But car manufacturers currently have to comply with two different sets of regulation. Removingduplicate regulation would bring down production costs and arguably consumer prices, even if this does notautomatically generate new trade. While car safety is a common sense issue, negotiators face many controversialissues, such as food safety regulation where many Europeans perceive standards to be lower on the other side ofthe Atlantic.AgricultureAgriculture is traditionally a contentious area. For example, not all geographical indications such as Parma hamand champagne will be recognized by the United States. Meat exports are another difficult issue.Government procurementFair and open access to government contracts is supposed to be an essential part of TTIP. But access isespecially difficult to obtain at the sub federal level where the national government might have less power tolegislate. Some promising progress has been made by the EU on that front in its recent free trade agreement withCanada.Investor-State Dispute Settlement (ISDS)ISDS is an enforcement mechanism that is supposed to avoid discrimination against foreign companies. It is aparticularly contentious issue in Europe, where a hostile stance has been adopted by the German government;large parts of the German public and increasingly also in the UK. Perhaps not surprisingly, ISDS is also an issuewhere a great deal of misinformation is inserted into the public debate by antiglobalisation campaigners.Given these countries’ resistance to ISDS, there has been considerable pressure on the EU to drop ISDS from thenegotiations. But given that the EU typically insists on ISDS mechanisms when negotiating trade agreements withlower income countries, it would smack of hypocrisy to oppose them when negotiating with the United States.Financial servicesFinancial services are a priority for the UK given their weight in the national economy. But the United Statesstrongly resists the inclusion of financial services in TTIP, partly because it is occupied with implementing theDodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which seeks to increase the safety of thefinancial system in the wake of the Great Recession of 2008/09.Geostrategic considerationsInternational trade in the modern world is increasingly about ‘making things’ and no longer as much about ‘sellingthings’. The rise of outsourcing and global value chains has fundamentally transformed international trade andforeign direct investment. Governance is needed to regulate these trends.Given the enormous size and clout of the EU and the United States, TTIP might be a forum where 21st centurytrade rules are set. TTIP is supposed to be a ‘living agreement’ that creates a permanent dialogue for the futurewhere new regulation is discussed and implemented. In that sense, TTIP is not only an economic project but alsoa political project to promote transatlantic ties.Given the rise of emerging economies, TTIP might be the last opportunity for individual EU members such as theUK to have a major impact on setting high standard global trade rules. The price of failure might therefore be high.Parallel developments and the role of ChinaIn addition to TTIP, the United States is currently negotiating the Trans-Pacific Partnership (TPP) with 11 othercountries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore andVietnam). TPP is seen as more difficult politically since it involves low wage countries such as Vietnam. Issues oflabor and environmental standards are likely to come up, but these play less of a role in the TTIP negotiations.It has been suggested that TTIP and especially TPP are designed to contain China – or at least to encourageChina to engage more actively in global trade initiatives. TTIP should not be a closed shop. Third countries shouldbe allowed 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 arise from the changing political landscape on both sides of the Atlantic. In the EU, thenew European Parliament is likely to be less friendly towards international trade and investment.On the US side, the midterm elections in November 2014 took momentum away from the TTIP agenda. The USadministration is yet to secure ‘trade promotion authority’ from Congress, without which the US administrationcannot make serious negotiating offers. If no major progress is made in the narrow window of opportunity beforethe presidential election cycle kicks in, then we might not see a successful conclusion of TTIP until 2017 or even2020.How can research contribute?Evidence on the effects of trade agreements is hard to produce. Nevertheless, there is strong demand for high‐quality research. For example, it is frequently claimed that trade liberalization leads to lower consumer prices.While it is easy to produce theoretical models with this result, it is harder to show this convincingly in the data.Prices can move for dozens of reasons, and international trade is only one potential factor. Furthermore, there isnot enough research focus on nontariff barriers such as differential regulation. These barriers 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 trade research. For example,there is sometimes a mismatch between negotiators. Many US representatives tend to be ‘technocrats’, oftenlawyers, who have in-depth expertise on specific issues such as regulation. In contrast, their EU counterpartsmight be political appointees who delegate specific issues to expert aides. As a result of this imbalance, it can behard 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.This article originally appeared in the Winter 2014/2015 issue of CentrePiece, the magazine of the Centre forEconomic Performance (CEP) at LSE.Please read our comments policy before commenting.             Note:  This article gives the views of the author, and not the position of USApp– American Politics and Policy, norof the London School of Economics.Shortened URL for this post: http://bit.ly/1ANerLv _________________________________ About the authorDennis Novy – University of Warwick, LSE CEPDennis Novy is an associate professor at the University of Warwick and a research associate inCEP’s globalisation programme. He was the specialist adviser to the House of Lords on TTIP andhis views expressed here do not necessarily reflect those of the House of Lords.CC BY-NC-ND 3.0 2014 LSE USAPP

Governments have to come up with much more convincing narratives and concrete examples if they want to sway the public debate on TTIP

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