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Debates

External Action

The strategic importance of TTIP

Xenia Wickett / Mar 2016

The United States Trade Representative, Michael Froman, and the European Commissioner for Trade, Cecilia Malmström. Photo: European Union

The Transatlantic Trade and Investment Partnership (TTIP) has been mostly analysed through an economic lens, especially in Europe. But at least from the American perspective, the trade deal is a very central part of America’s broader foreign policy and seen as a vital tool of international affairs.  

So when Americans consider TTIP they do so through two lenses – the economic and strategic. From the economic angle, there are two significant benefits to the deal. The first are those that will be realized through the lowering of tariffs; the numbers vary but a study conducted by the Centre for Economic Policy Research for the European Commission forecasts a 0.04% increase in GDP for the US, 0.1% for the EU, and an expansion of nearly 100 billion euro in total transatlantic trade, as a result of tariff liberalization.

The second economic benefit is less tangible, but of more significance over the long term. The trade agreement will strengthen the transatlantic market as a pole of attraction for global business, and thus have additional positive economic consequences.

However, perhaps of even more importance are the strategic benefits of TTIP. First, in creating common transatlantic standards and norms, the deal would provide the basis for a renewed economic architecture for the 21st century. This is of course where the toughest problems lie, but the vision – to create a new set of standards to which, in time, the rest of the world would conform – is an enormously powerful one.

This vision, if achieved, would also realize the second strategic objective of TTIP - to maintain Western leadership (as the Bretton Woods institutions, the IMF and World Bank, have done for the past seventy or so years) in the global economic arena, and in so doing, arrest the perception of Western decline. There are competitors out there, such as the Chinese-led Regional Comprehensive Economic Partnership (RCEP), who would prefer that it were otherwise and will take the opportunity to step up if given it.

The final strategic objective is to show the broader international community that the US, and Europe, have not foregone leadership and that the two can still work together to achieve common objectives. As the US has taken a back seat on military operations in the Middle East and North Africa, many have started to doubt its ability to lead. And tensions over such issues as privacy, intelligence gathering and the dominance of Silicon Valley have raised perceptions that the US and Europe are diverging on many economic and social issues.

Thus the importance of the TTIP goes far beyond the economic realm alone. In imbuing the deal with additional broad strategic goals the United States is taking a great risk. What happens if the deal fails? The consequences lie in four main areas.

First, are the implications vis-à-vis power politics. Failure to reach agreement on TTIP will make the US and European Union look impotent and ineffective. It will confirm the suspicions of many that the West are yesterday’s power centres but not tomorrow’s. Secondly, this will raise subsequent questions over the transatlantic relationship. If the US and Europe can’t do this together, what can they do? Not only will it reinforce the rhetoric of divergence, but it also exposes the risk of greater real divergence.

The last two major consequences of a failed deal are in the economic and trade arenas. There would be real costs to the consumer and to businesses, particularly small and medium sized enterprises. An inability to reach common standards will ensure that such enterprises continue to expend resources on meeting the rules in both jurisdictions. Likewise the consumer will miss out on any cost reductions that might have been passed on to them.

Finally, the failure of TTIP will slow the convergence of global trade. To the extent that new global norms are created, they will likely have lower regulatory standards (reversion to the lowest common denominator), with implications for consumers everywhere. Convergence will still happen in time (globalization is a force not fully spent), it is just less likely to be led by the transatlantic partners.

TTIP will be seen by many around the world as a weathervane for US and EU global leadership. And, as hard as this agreement is to achieve, the broader consequences of its failure, strategically as well as economically, must be kept in mind. Such considerations should be part of the European debate.

 

Xenia Wickett

Xenia Wickett

March 2016

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