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Tipping the Scales

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Without TTIP Europe’s competitiveness in the global market is in danger, especially in light of the TPP agreement the US is negotiating with Asia. Success will require huge political investment from leaders on both sides.

German farmers and consumer rights activists hold banners and flags as they protest against the Transatlantic Trade and Investment Partnership (TTIP), mass husbandry and genetic engineering during a demonstration in Berlin, January 17, 2015. The banner in the center reads "TTIP is dumb." REUTERS/Fabrizio Bensch (GERMANY - Tags: AGRICULTURE CIVIL UNREST POLITICS BUSINESS) - RTR4LSGA

REUTERS/Fabrizio Bensch

The global economic center is shifting to Asia, from the Atlantic to the Pacific. “Growth in Asia and the Pacific will continue to outperform the rest of the world, and is expected to remain steady at 5.6 percent in 2015,” the International Monetary Fund (IMF) recently stressed. “Asia will remain the global growth leader, even though potential growth – the economy’s speed limit – is likely to slow.”

How does this affect Europe? In the EU, we often forget that our most important trading partner, the United States, is a Pacific country as well as a Transatlantic one, with strong ties to Asia. US President Barack Obama’s so called “pivot to Asia” was complemented by a strong Asian trade strategy. With the Trans-Pacific Partnership (TPP), the US and eleven countries in the Pacific Rim are currently negotiating a comprehensive, mega-regional trade agreement encompassing about 40 percent of global GDP and 26 percent of global trade. Obama wants to conclude said deal in 2015.

Contrasted with America’s ambitious Asian trade agenda, the EU’s trade strategy towards Asia is miniscule. The EU currently is negotiating with Japan. But it has failed to reach a regional deal with the ten ASEAN countries. A bilateral deal with Singapore was finished in 2014, but still needs to be ratified along with an agreement with Vietnam (concluded in August 2015); bilateral deals with Thailand and Malaysia are currently in progress, while talks with India have stalled. Any present agreements are small in comparison to TPP or the Regional Comprehensive Economic Partnership (RCEP), which, unlike TPP, includes China (and not the US) and is scheduled to be completed by the end of 2015; the RCEP will account for 49 percent of the world’s population and 30 percent of world GDP, and make up 29 per cent of world trade.

Rather than strengthening its trade ties to Asia, Europe has focused its efforts on the Atlantic. The Transatlantic Trade and Investment Partnership (TTIP) with the US is the largest and most important trade agreement currently in the works for the EU. Together, the EU and US represent the largest economic market, covering around 45 percent of global GDP and 44 percent of global trade in goods and services.

Trade and growth dynamics in Asia far exceed the Transatlantic and European economic outlook. Nevertheless, TTIP could serve as a stepping stone for a strategic European trade policy, one that preserves European influence in global trade; without it, Europe is at risk of falling behind and being eclipsed by growing economies elsewhere.
Setting Standards

TTIP is of course important for generating growth. But more importantly, it could help determine where future global standards are set – in the EU and US, or in Asia. The EU needs the US as a partner to create new regulations and promote high global standards. If both regions are able to agree on common standards, they have a first-mover advantage that other countries and regions will have to follow, as was the case when the EU and US agreed on common standards in e-mobility.

To that end, TTIP negotiations cover many new areas beyond WTO rules, including rules in the area of sanitary and phytosanitary measures (SPS) and technical barriers to trade (TBT), as well as new areas such as sustainable development, competition, trade facilitation, energy, raw materials, and small and medium enterprises (SME).

In an article titled “A Comeback Strategy for Europe”, former Swedish PM and foreign minister Carl Bildt and former EU High Representative Javier Solana summed this up: “If the TTIP stalls or collapses, while the TPP moves forward and succeeds, the global balance will tip strongly in Asia’s favor – and Europe will have few options, if any, for regaining its economic and geopolitical influence”. The EU and US are still the world’s dominant trading partners. Without this strategic agreement, the EU will jeopardize its competitive position in the world.

Why TTIP is Lagging

If the strategic advantages of TTIP seem to be so clear, particularly for the EU – why are the negotiations taking so long as TPP progresses so quickly?

First of all, TPP is a high priority for President Obama. He wants TPP as a legacy of his presidency. Asia is seen as a “fresh” and growing region, especially in comparison to “Old Europe”, with her slow growth and aging population. TTIP is still important for the US, but it is definitely not the highest priority in Washington right now. And even though the July 2015 TPP meeting in Hawaii ended without an agreement (due to differences in automobile regulations, dairy market access, and patent and regulatory data protections for biological drugs), progress was made. A second meeting of the TPP partners to conclude a final deal is planned for this fall.

TTIP was supposed to be finalized by the end of 2015 too, but progress has been slow – which is due more in part to TTIP’s complexities rather than a lack of ambition. The US and the EU already have deep, long-standing economic, trade, and investment relationships, thus the negotiation issues at the heart of TTIP are far more delicate than other agreements for younger relationships. Both parties underestimated this. TTIP mainly covers non-tariff trade barriers which also impact health, consumer, and food safety standards as well as environmental and labor concerns. All of these are politically sensitive issues, many remain unresolved, and big political decisions still must be made regarding investor-state dispute settlement (ISDS), genetically modified organisms (GMOs), and public procurement on all state levels, just to name a few.

In July 2015, the EU and the US concluded the tenth negotiating round in Brussels. These were the first deliberations since important legislation had been passed by both sides: in June, the US Congress passed the Trade Promotion Authority (TPA), and in July, the European Parliament adopted a TTIP resolution and signed a series of recommendations. The endorsement by the European Parliament and the US Congress was an important step forward, as both parliaments will have to ratify the final treaty, a point EU chief trade negotiator Ignacio Garcia Bercero stressed, when he said that negotiators were working “with strong political wind in our sails.” During the negociations, both sides were able to accelerate their talks on services market access, a major issue in TTIP where both the EU and US stand to gain quite a bit. Chief US trade delegate Dan Mullaney emphasized that this was “a welcome step forward.” Despite these positive developments, it remains unclear whether TTIP will be concluded before President Obama leaves office in 2017. At the G7 summit in June in Elmau, G7 leaders called on both TTIP parties to “immediately accelerate” their work and to deliver an outline of a possible agreement at the end of 2015.

German Hostility

Despite Germany’s strong export focus, a large part of the German public sees TTIP as a threat to its values and way of life and has become increasingly hostile to the project. Concerns center on the overall transparency of the negotiations, as well as fears of lower food safety and environmental standards. Many also fear that the investor-state dispute settlement (ISDS) process will serve as a way for US corporations to circumvent democratic procedures and the “right to regulate”, allowing them to lower standards through a backdoor. The anti-TTIP movement, which consists of a large group of NGOs and trade unions at its core, has called for a nationwide “Stop TTIP/CETA” demonstration in October.

To counter the growing tide of public distrust, it is not enough for German business leaders to repeatedly point out the technical advantages of increased market access, mutual recognition, and common regulatory processes. Instead, Chancellor Merkel must make a specific economic and also (geo)political case for TTIP and push for genuine progress in the negotiations. To alleviate the fears of the opposition, it is important to have transparency with as many TTIP position papers and documents as possible. Furthermore, the European Commission and the German government should make a convincing and detailed case, outlining where concessions and liberalizations are possible and what is non-negotiable.

Present trade agreements (e.g. the EU-US veterinary equivalency agreement from 1999 or the FTA with South Korea or Canada) could serve as good examples. Regarding ISDS, there is a broad consensus on the EU side that the existing provisions need to be reformed. The proposal made by German Vice Chancellor Sigmar Gabriel to reform the present system of ISDS and eventually establish an international investment court is a step in the right direction.

Germany is the largest national economy in Europe and is one of the world’s leading exporters. Because of its size and economic performance, it has a strong influence on the TTIP negotiations and the final agreement. TTIP needs support from the German population, which has become complacent with its status quo economic performance and competitiveness.