Forging a transatlantic trade deal
4 min read 25 Feb 2013, 06:50 PM ISTTrade liberalization between the US and EU may kickstart the next round of free trade in the world
Premium
One of the most important announcements made by President Barack Obama in the first state of the union address in his second term was the launching of negotiations on a comprehensive Transatlantic Trade and Investment Partnership (TTIP) with the European Union (EU). The decision taken by the two largest economic entities to launch the TTIP negotiations marks the political endorsement of the transatlantic partnership, which has been developing for the past several years. Its projected benefits through a deepening of the US-EU relationship aside, TTIP could have a much wider impact: it could fundamentally change the dynamics of economic partnerships that are being forged both at the multilateral and regional levels.
TTIP is being posed as a formation that would address the economic woes of two economies. At least this is the message sent out by the high level working group on jobs and growth, which provides the contours of the agreement. The final report of the working group, which was presented just as Obama was giving his political approval to TTIP, states that the proposed agreement could generate new business and employment by significantly expanding trade and investment opportunities in both economies. Such opportunities are expected to be created, on the one hand, through ambitious reciprocal market opening in goods, services and investment, and by modernizing trade rules and enhancing the compatibility of regulatory regimes, on the other. Critical to the negotiations would be elimination, reduction, or prevention of unnecessary “behind the border" non-tariff barriers to trade in goods and services and enhanced compatibility of regulations and standards since the tariff barriers in both economies are already quite low.
The issue of “behind the border" barriers to trade are particularly important for both the US and EU as they have been at war over policy measures adopted by their respective governments, which were seen as providing unfair commercial advantage to the domestic enterprises. The most celebrated of these cases involved the disputes over the grant of subsidies to Boeing Co. and Airbus Industrie that are being adjudicated by the dispute settlement mechanism of the World Trade Organization (WTO). While the US blamed EU for providing a range of subsidies in the form of grants and government-provided goods and services to develop, expand and upgrade Airbus manufacturing sites producing its entire family of products, EU pointed out that the federal government and several states in the US have transferred in various ways economic resources to Boeing on terms more favourable than available on the market.
The grant of agricultural subsidies is a major bone of contention. Both the US and EU have doled out considerable amounts of agricultural subsidies, but they have had their differences over the WTO compatibility of each other’s subsidies regimes.
The objective to achieve compatibility of regulations and standards is another ambitious dimension of TTIP. In recent decades, both the US and EU have provided tacit protection to their domestic enterprises by adopting strict product and process standards. The imposition of some of these standards has also resulted in trade disputes at WTO, which includes the dispute brought by the US against the EU decision to restrict importation of genetically modified (GM) products on health and environmental considerations. More recently, EU threatened to impose carbon taxes on airlines flying into any of its member states that did not meet its standards of carbon dioxide emissions.
Alive to the fact that the issue of standards could be a potential deal breaker, standard-setting organizations in both jurisdictions are discussing ways in which they can find acceptable solutions. The American National Standards Institute together with the three European Standards Organizations, European committee for standardization, European committee for electrotechnical standardization and the European Telecommunications Standards Institute have taken up the issue of their collaboration on emerging areas of technology, such as cloud computing, machine-to-machine communication, and smart cities. A successful outcome of these discussions could have a far- reaching impact for it could produce industry-wide standards that can be harmonized globally. This would undoubtedly be the first major step towards addressing the problem of non-tariff barriers and the consequent easing of cross-border trade.
What is the likely impact of TTIP on the economic integration initiatives involving the US and EU? In recent years, the US has been inclined to engage only with its partners negotiating the Trans-Pacific Partnership Agreement (TPPA). Now that it has agreed to invest its negotiating capital in TTIP, its continued interest in TPPA should be a matter of conjecture.
Equally important are the prospects of the many agreements that EU has already concluded with a wide variety of developing country partners and its ongoing negotiations for a trade and investment agreement with India. Whether the proposed TTIP and EU’s wholesome engagement in the negotiations would adversely affect the implementation of these agreements is an issue that should be of considerable concern to its partners.
Trade economists have always argued that trade and investment agreements at the multilateral level provide the first-best solution for global economic integration. With bilateral initiatives such as TTIP becoming ever so important, attempts to find the most desired solution through WTO negotiations could be seriously undermined.
Biswajit Dhar is director general at Research and Information System for Developing Countries, New Delhi.
"Exciting news! Mint is now on WhatsApp Channels 🚀 Subscribe today by clicking the link and stay updated with the latest financial insights!" Click here!
