Transatlantic Trade and Investment Partnership – TTIP
Advantages, Disadvantages, Opportunities, Obstacles and Next Steps
The Transatlantic Trade and Investment Partnership (TTIP) is a free trade agreement being negotiated between two of the world's largest economies, the U.S. and the E.U. The United States produced US$20.5 trillion in trade during 2018, and the European Union, which produced $22 trillion. The two economies generate almost a third of the world's gross domestic product of $135.2 trillion.
The Direction of International Trade
The United States trades more with the EU than with China. The total amount traded is already at $1 trillion, but the TTIP could quadruple that amount. It could boost U.S. GDP by 5% and the EU's by 3.4%. That's by eliminating all tariffs and other trade barriers.
If completed, the TTIP would become the world's largest trade agreement. It would be bigger than the North American Free Trade Agreement.
The importance of the EU is even greater for foreign direct investment. European companies accounted for $2.96 trillion, or 68% of total FDI in the United States. American companies accounted for $3.61 trillion, or 61%, of FDI in Europe in 2018.
These investments use 4 million workers on both sides of the Atlantic. That's how many are employed by the affiliates of European or U.S.-based companies. For example, the German company Siemens employs 60,000 people in the United States. General Electric employs 70,000 workers in Europe.
President Obama kicked off the TTIP during his 2013 State of the Union Address. The next day, trade representatives began "the internal procedures necessary to launch negotiations."
But President Trump hasn't made the treaty a priority. Instead, Trump threatened a trans-Atlantic trade war. As a result, treaty negotiations are focusing on areas that appeal to both sides. Representatives have made progress on harmonizing safety testing procedures and other regulations. The resulting agreement will be much smaller and less significant the original TTIP.
Pros of Transatlantic Trade and Investment Partnership
The advantages of the TTIP are evident. Greater growth would create jobs and prosperity for both areas. Former U.K. Prime Minister David Cameron announced it could create 2 million jobs.
Some industries would benefit more than others would. For example, drug companies would cut costs. That's because there would be one agreed-upon drug testing program for the United States and the EU. The electric car industry would profit by complying with one unified standard. American farmers could expand if the EU permitted genetically modified (GMO) agricultural products.
An agreement would strengthen the geopolitical standing of the Trans-Atlantic bloc against the rising economic power of China, India, and other Pacific nations, as well as the growing success of Latin America. If the United States and the EU could iron out their differences, they could stand as a united front against market threats from the rest of the world.
Cons of Transatlantic Trade and Investment Partnership
Many industries could suffer from increased competition from Europe. That might result in fewer jobs for American workers. These disadvantages go with any trade agreement.
For example, European agribusiness would suffer from cheaper American-made food imports. Both governments would have to stop protecting industries such as French champagne. Boeing, an American plane company, is in fierce global competition against France's Airbus. The agreement could hurt one more than the other.
Obstacles to TTIP
The biggest obstacle is the protected status of each country's agribusinesses. They receive government subsidies. It's unlikely either trade partner would decrease the amount of government support. That would increase food prices even more.
The EU bans all genetically-modified crops. It prohibits meat from animals treated with growth hormones. It also refuses poultry that's been washed with chlorine. These are all practices common with U.S. food. European consumers would protest if these bans were lifted. They want protection from tainted or lower quality food.
Then there are many smaller issues. For example, Greece requires any cheese labeled "feta" be made from sheep or goats. U.S. dairies make feta cheese from cow's milk.
It's highly unlikely that the EU will compromise by relaxing regulations. Opposition to lowering these standards is what finally rang the death knell for the Doha round of world trade talks.
Transatlantic Trade Opportunities
One way to overcome these obstacles might be a tiered-approach. Negotiations could be successful in areas that aren't major sticking points. For example, remaining tariffs could be eliminated. But this wouldn't have much of an economic impact since tariffs are already low.
Negotiations began right after the 2013 G8 Summit. The two sides agreed to adopt the High-Level Working Group (HLWG) on Jobs and Growth Report as a basis to continue negotiations. On February 11, 2013, the HLWG presented recommendations grouped in the following three areas:
The best way to improve this would be to:
- eliminate all duties and tariffs on non-sensitive products. Continue negotiations for sensitive markets, such as commercial aircraft and agriculture. As of January 2017, negotiators agreed to eliminate tariffs on 97% of trade;
- make licensing and qualification requirements more transparent for services;
- liberalize investment procedures while retaining protection; and
- improve access to government procurement opportunities.
Behind the Border Processes and Regulations
These are differences in processes that aren't tariffs or laws but still make it difficult for foreign firms to do business. To overcome this, the HLWG recommends that the two sides:
- use the standards set by the World Trade Organization to use agreed-upon scientific methods to address sanitary issues. In other words, the EU needs to drop its refusal to accept GMO and hormone-treated foods. It will be tough to resolve;
- use WTO standards to create uniform testing, certification, and standardization requirements;
- work together to implement existing regulations and to develop new ones;
- where rules and certifications remain different, agree to accept approved goods and services from the other trading partner. For example, doctors and pharmacists could use their license to work anywhere in the trading area; and
- develop procedures to cooperate on developing future regulations.
Rules Addressing Shared Global Trade Challenges and Opportunities
These are issues that will set a standard for trade agreements everywhere. The HLWG recommends that both sides:
- cooperate and present a united front on protecting intellectual property rights;
- include environmental and labor protections in the TTIP, using existing guidelines; and
- reach agreement in areas that are vital to global trade. These include customs and trade facilitation, competition policy, state-owned enterprises, protection of local industries, raw materials and energy, small- and medium-sized businesses, and transparency.
On April 16, 2015, Congress gave the president fast-track trade promotion authority until 2021. It allowed President Obama to proceed with final negotiations. Fast-track means Congress must either give a thumbs up or thumbs down on an entire trade deal. They cannot revisit every element of a multilateral trade agreement. That makes it easier for the administration to finalize negotiations.
On June 23, 2016, Great Britain voted to leave the EU. Brexit threw the negotiations into a new level of uncertainty. It could take two years for the details of its exit to be worked out. That clouds its status as a member of the trade agreement. The vote strengthens the anti-globalization and anti-trade voices within Congress.
In 2017, President Trump suspended TTIP negotiations. Trump was following an "America First" policy of economic nationalism. He threatened the EU and other trading partners with tariffs on steel and aluminum.
On March 29, 2018, U.S. Department of Commerce Secretary Wilbur Ross said the administration would be willing to resume TTIP negotiations. The Trump administration would like to lower the U.S. trade deficit with the EU. In 2018, the deficit was $109 billion. But it would be difficult to resume positive negotiations under the threat of a trade war.