GED Blog » Fostering Economic Integration Through International Trade & Investment » Part II: Why TTIP Is about More than “Just Europe and the US”

Part II: Why TTIP Is about More than “Just Europe and the US”

© flickr/Alessandro Tortora© flickr/Alessandro Tortora

This is the second part of our blog series exploring the global stakes behind TTIP. The potential “free trade spillover” we addressed in our previous blog post on Wednesday is one of them, but there’s more to it.

Life Goes On – Global Trade Will Grow With or Without TTIP

In our first post, we did our best to answer a fairly broad question: “What effect would TTIP have on the structure of our global trade economy?” Now, how about reversing the perspective to ask “How would different patterns and structures of global trade impact TTIP’s benefits for Europe and the United States?” Using different examples makes the answer rather intuitive. For instance, let’s assume that TTIP gets rejected but, in the meantime, the US Congress signs into law the Trans-Pacific Partnership, a broad agreement between the United States and, among others, Singapore, Vietnam and Australia.

In that case, because of trade diversion, the opportunity costs of TPP, but no TTIP would be great for Europe. However, if both TPP and TTIP fall dead, then the costs of rejecting a partnership with the United States will be minimum.

TTIP supporters and opponents alike should thus always remember that transatlantic trade does not take place in a vacuum (if needed, a quick look at our visualization of all the FTAs currently in action should convince you). Trade patterns among and across continents are rapidly changing and TTIP’s effect will depend on the future shape of the global economy. The Global Economic Dynamics team is exploring this approach at the moment and we will get some results of different mega-regional impact scenarios quite soon: stay tuned for more!

The Once in a Century Chance

This “trade scenario” argument, however, is merely an extension of our previous blog post on the impact of trade diversion and it’s now time to go further. TTIP is not only about more than the European and American economies, it is also about more than trade liberalization. The deal is a once-in-a-century chance to promote high-end economic standards across the globe. As Elmar Brok, Chairman of the European Parliament Committee on Foreign Affairs, told us during our Rome conference, “The European Union and the United States together can put standards which are fair, which are progressive, for better economic development but also social standards.”

Such standards could apply to food safety, environmental protection or intellectual property, giving us the opportunity to set rules while we still have the means to do so. Today, Europe and the United States account for 45% of world GDP. Twenty years ago, our combined production was nearly two-thirds. In 2050, it should be about 30%. If this increasing spread of economic power around the world should be welcomed as a wealth rebalancing, it also signals that, if the Atlantic partners wish to weigh on such global negotiations, now is a good time to act.

The Contentious “Right To Sue” provision might not be so bad

Among other things, this perspective sheds a new light on the much debated right-to-sue provision. Surely, there is room for improvement and a lot has already been done in the trade deal Europe concluded with Canada earlier this year. But the stakes of including an investor protection chapter in TTIP go beyond trade relations between Europe and the United States. First of all, if both countries hope to persuade China to adopt proper investor protection clauses in future trade deals, they better agree on one for themselves. Doing otherwise would make convincing China to embrace ISDS mechanisms tricky, at best.

On the other hand, although right-to-sue mechanisms are in many ways insufficient and sometimes inadequate for developed economies, they are far from obsolete and TTIP would offer a good occasion to set better standards for future ISDS provisions. Now is the chance to substantially improve this “transition instrument” so it that it can protect investors efficiently from state arbitrariness while retaining governments’ sovereignty when setting progressive and forward-looking legislation.

Both Europe and the United States should nonetheless be careful if they decide to use TTIP as a way to set global standards. As Marietje Schaake, vice-chair of the Delegation for relations with the United States, told the GED Team a month ago, “If we join our economies in the sense of setting standards, it is not so much about forcing others but rather in terms of seeking a leadership position in setting standards according to the values that we cherish. And if we are the first, and we do it for the largest markets … then we can lead in the global economy.”

Looking at current events through a very narrow pipe is not just irritating for economists. It’s an issue for everyone, on both sides of the debate. At least for those eager to get this right. If a lack of transparency around TTIP’s negotiations indeed makes little sense in our connected democracies, a lack of foresight in a globalized world is just as problematic.