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Current news Act. 13 Nov 2018

TTIP: the devil is in the details

resource finances ttip

Global trade is not at its best amid moderate economic growth and uncertainty in emerging economies – the drivers behind trade momentum prior to the 2007-2009 crisis. There has been a slowdown in the international exchange of goods and services since the middle of the last decade, making it seem like there are other factors behind recent years' cyclical weakness. There could be technological reasons, since falling transportation costs from “containerization” have slowed, or from China reorienting its economy toward domestic demand and services instead of acting as the world’s assembler.

But the last decade’s liberalizing drive has also been curbed. Tariff and non-tariff barriers are no longer being eliminated and have even increased in some key economies, to the detriment of society’s well-being: companies’ profit - the source of investment and employment - and of improving the availability and prices of goods and services for households.

In this climate  the U.S. and EU trying to have the best regulatory environment to foster their economic exchanges is highly welcome. They have been negotiating the signing of a free trade agreement, the Transatlantic Trade and Investment Partnership  (TTIP) since July 2013. The fact that the negotiations are still underway with no end date in sight is a reflection of the complexity of the process, and also of the ambitious goal: to further enhance the trade of goods and services and investment flows between the largest economic regions with the highest income per capita in the world.

Exports and imports of goods and services, and the accumulated stock of direct investment represent nearly 50% of the U.S.’ GDP, and more than 70% of the EU’s GDP, but there is room for additional earnings given the complementarity of the import/export structure.

To achieve their goal, negotiations are focusing on three pillars that are much broader than simply reducing tariffs, which are already generally low, with some exceptions in agriculture.

First, they seek to improve mutual access to the market, for example in the provision of goods and services for the public sector so that calls for tenders are equally available to foreign companies.

Second, they hope to attain regulatory cooperation, preventing quality regulations or technical specifications from becoming a barrier for foreign products in practice, by promoting mutual recognition of quality and safety controls, for example, without having to repeat them in the recipient country.

Third, they aim to adopt new rules that foster business, further protecting intellectual property and streamlining border procedures, for example, which would especially benefit small businesses.

But the devil is in the details. General principles have to be made more specific for activities and products. This requires extensive negotiations that specify the costs to be assumed in the short-term - easier market penetration of certain foreign products and companies - in exchange for more uncertain benefits– improvement in the availability of goods and services. In short, the increase in competittion that so many are wary about, as it reedistributes income, jobs and profits, and winners and losers.

Nevertheless, contrary to the myth of a lack of transparency, the details of the negotiation are well known. A simple Internet search reveals the sites on the TTIP from the European Commission, the European Parlament and the Office of the U.S. Trade Representative.

The chance to reach an agreement is there, given the U.S. government’s approval to negotiate trade agreements without subsequent legislative amendments, which helps to settle negotiating positions.

An important agreement also has the goal of serving as a standard for emerging economies, establishing the same rules for everyone

* Julián Cubero is Head Economist for Economic Scenarios at BBVA Research

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