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TTIP – Is free trade coming to the North Atlantic?

If successfully concluded, the Transatlantic Trade and Investment Partnership (TTIP) would be the most ambitious free trade agreement in history, writes Dennis Novy – and it has the potential to benefit millions of consumers,. This is partly because of its sheer scale – the European Union and the United States represent about 45 percent of global output. It is also partly because of the attempt to tackle non-tariff barriers and regulation.

As a mega-deal, TTIP is potentially a game changer for 21st century trade. But while the potential benefits from liberalised transatlantic trade are large, getting there will be an arduous process and many difficulties will have to be overcome. TTIP might falter if there is not enough political support from the top echelons of government. TTIP is not only an economic project but also a political project to promote transatlantic ties. What’s more, it might be the last opportunity for individual European countries to set high-standard global trade rules.

The UK House of Lords recently published and debated a report on TTIP on the basis of an in-depth investigation (House of Lords, 2014). It concluded that 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. (Disclaimer: Dennis Novy was the Specialist Adviser to the House of Lords on TTIP in 2013/14. The views expressed are his and do not necessarily reflect the views of the House of Lords.)

Winners and losers

A study produced by the Centre for Economic Policy Research (CEPR, 2013) indicates that in the best-case TTIP scenario, the average EU household of four could see its disposable income rise by EUR 545 per year by 2027 as a result of lower prices and higher productivity. But the degree of uncertainty involved in such predictions is immense, not least because they depend on the extent of the agreement.

Will there be a comprehensive agreement with full-fledged liberalisation 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 to gain considerably from TTIP on both sides of the Atlantic. Not surprisingly, it is one of the best organised industries in relation to TTIP

In the case of the UK, other industries likely to gain include chemicals and the pharmaceutical industry. But even if we believe that TTIP would be beneficial for countries and consumers as a whole, there will inevitably be losers. For example, highly protected sections of the Mediterranean agricultural industry might shrink once their tariff 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 are likely diffuse, while costs will be concentrated. The lack of transparency surrounding the negotiations creates further suspicion.

Governments have to come up with much more convincing narratives and concrete examples if they want to sway the public debate on TTIP. How can the average person in the street benefit from this trade agreement? Why is it in the EU’s long-term interest to engage in such negotiations? At the moment, in most EU countries the debate centres on specific items such as chlorinated chicken or international arbitration panels to resolve disputes. These issues are important and deserve a proper discussion in the public limelight. But on many occasions, cherry-picked items have been hijacked by campaigners with an ulterior political agenda.

The public debate would benefit from a more diverse and balanced discussion that tries to see both sides of the argument. It seems that governments across the EU are currently losing the public debate. Communication cannot be left to the EU Commission alone. Governments should engage more with their national electorates, and this engagement needs to happen at all levels of government, not only through trade and finance ministers.

Important sticking points

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 aligning regulation and removing non-tariff barriers. A classic example is car safety regulation. There is no evidence that cars are less safe in either the EU or the US. However, car manufacturers currently have to comply with two different sets of regulation. Removing duplicate regulation would bring down production costs and arguably consumer prices, even if this does not automatically generate new trade. While car safety is a common sense issue, negotiators face many controversial issues such as food safety regulation.


Agriculture is traditionally a contentious area. For example, not all geographical indications such as Parma 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 of TTIP. But access is especially difficult to obtain at the sub-federal level where the national government might have less power to legislate. Some promising progress has been made by the EU on that front in its recent free trade agreement with Canada.

Investor-State Dispute Settlement (ISDS):

ISDS turns out to be a particularly contentious issue in the European debate. In particular, a hostile stance has been adopted by the German government, large parts of the German and Austrian public and increasingly also in the UK.

Perhaps not surprisingly, ISDS is also an issue where a great deal of misinformation is inserted into the public debate by political campaigners. At its core, ISDS is an enforcement mechanism that is supposed to avoid discrimination against foreign companies. Nevertheless, there is considerable pressure on the EU to drop ISDS from the negotiations. But given that the EU typically insists on ISDS mechanisms when negotiating trade agreements with lower-income countries, it would smack of hypocrisy to oppose them when negotiating with the US. But they might well be dropped from the agreement in the end.

Financial services:

Financial services are a priority for the UK in particular given their weight in the British economy. However, the US Administration strongly resists the inclusion of financial services under the TTIP umbrella, partly because it is occupied with implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. International trade in the modern world is increasingly about ‘making things’ and no longer as much about ‘selling things’ . The rise of outsourcing, back-and-forth trade and global value chains has fundamentally transformed international trade and foreign direct investment (FDI). Governance and regulation is needed to manage these trends.

Given the enormous size and clout of the EU and US, TTIP might be a forum where 21st century trade rules are set. TTIP is supposed to be a ‘living agreement’ that creates a permanent dialogue for the future where new regulation is discussed and implemented. In that sense, TTIP is not only an economic but also a political project to promote transatlantic ties. Given the rise of emerging economies, TTIP might be the last opportunity for individual EU member countries such as the UK to have a major impact on setting high-standard global trade rules.

The price of failure might therefore be high. TTIP 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 the EU, the new European Parliament is likely less friendly towards international trade and investment. On the US side, the Obama Administration is yet to secure Trade Promotion Authority (TPA) from Congress. Without TPA, the US Administration cannot make serious negotiating offers.

If no major progress is made in the narrow window of opportunity before the presidential election cycle kicks in, then we might not see a successful conclusion of TTIP until 2017 or even 2020 – if ever. TTIP has the potential to benefit millions of consumers. It goes far beyond an economic project. Its current timetable seems ambitious. Without considerable attention and support from the highest levels of government it will be hard to lead TTIP to a successful conclusion any time soon.

Dennis Novy is an Associate Professor of Economics at the University of Warwick, and a research affiliate at the Centre for Economic Policy Research (CEPR) and the Centre for Economic Performance (CEP) at the London School of Economics (LSE).

  1. […] TTIP kunnen we ook handel drijven met de VS en China. Er zijn vrijwel geen importheffingen die dat verhinderen. De TTIP-onderhandelingen gaan over (ingrijpende) aanpassingen van wetgeving. Niemand streeft naar […]

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