The Politics of Transatlantic Trade Negotiations

TTIP in a Globalized World

Jean-Frederic Morin, Tereza Novotná, Frederik Ponjaert, Mario Telò

• Publisher: Routledge
• Year: 2016
• Print ISBN: 9781472443618
• eBook ISBN: 9781317019862
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Political Economy
• Index: Politics & International Relations

By focusing on the wider process of negotiations, this novel volume presents the first systematic analysis of the Transatlantic Trade and Investment Partnership (TTIP). The authors include outstanding scholars and relevant practitioners from across disciplines and various academic institutions around Europe and North America, but also from outside of the transatlantic basin. While presenting a thorough examination of the process of TTIP negotiations, the volume is divided into four parts with each part examining a broader theme and offering three or four shorter exploratory chapters that are accessible to academics, students, policy-makers and a wider audience. The volume explores historical and theoretical aspects of TTIP (with chapters by Gamble, Keohane and Morse, Telò), the beginnings of the TTIP talks and the role of individual actors (Mayer, Novotná, Dür and Lechner, Strange), TTIP's possible knock-on effects and consequences for third parties (Aggarwal and Evenett, Duchesne and Ouellet, Zhang, Ponjaert) as well as impact on multilateral institutions and regimes complexes (Mavroidis, Mortensen, Meunier and Morin, Pauwelyn). The authors highlight dynamics which underline the relationship between the United States and the European Union and argue that TTIP promises to have vast implications not just for economics but global governance and international system.

PART I
Theoretical and Historical Context

Chapter 1
Multipolarity and the Transatlantic Trade and Investment Partnership

Andrew Gamble

The Global Context: An Unprecedented Multipolarity and Economic Crisis

The proposal for a Transatlantic Trade and Investment Partnership (TTIP) between the United States and the EU has arisen at a time when the international order is undergoing substantial change. The drivers of this change are firstly the global shift in the international economy from a unipolar to a multipolar order and, secondly, the aftermath of the 2008 financial crash and the complex set of policy responses to it. Each of these will be analysed in turn.

The international order which was established after the Second World War was bipolar, defined by the confrontation between the United States and the Soviet Union. The two superpowers created spheres of interest around themselves which reflected both geopolitics and political economy. With the end of the Cold War in 1989–91 and the breakup of the Soviet Union, the international order became unipolar because the United States was the only remaining superpower, and had an unrivalled ascendancy – economic, military and ideological. It prompted speculation about a new world order, the end of history, a return to ‘One World’, for the first time since before 1914. The US enjoyed an unprecedented military predominance, and the disappearance of the barriers which the Soviet Union had erected around itself and its satellites allowed the consolidation and extension of the multilateral international market order which had been fashioned under US leadership since 1945. This now became a universal framework and the disappearance of any alternative to it was a powerful incentive for all states to engage with the liberal international market order and accept its framework of rules and standards for international trade and investment, which the United States had done so much to shape.

This new international order was a great success. The political and economic restructuring of the 1970s had created an order based around freely floating currencies and liberal rules on trade and capital flows. These had encouraged strong trends toward globalization and liberalization, an increase in the interconnectedness of the international economy, which was particularly marked in the growing complexity of production chains, the expansion of financial and trade flows as well as cultural and information exchanges. The most significant achievement of this period was the emergence of a new group of rising powers. There had been other states which had broken through into fast growth, such as Singapore, Taiwan and South Korea. What was key about the new group in the 1990s was that it included some of the largest and most populous countries on the planet – China, India and Brazil. Their ability to maintain rapid rates of growth was of major significance because if it could be sustained it raised the possibility of a major shift in the balance of the international economy and the international state system taking place, from West to East and from North to South.

This sudden spurt in the industrialization and modernization, in particular of China and India, has changed all calculations. It was quickly realized that the unipolar moment would not last very long. The rapid growth of countries outside the traditional West meant that the world looked to be heading for multipolarity, many centres of power rather than just one. This had implications for the governance of the international order and how the interests of all the rising powers as well as the established ones could be accommodated. In addition, Russia began to revive at the end of the 1990s, boosted by the increased demand from an expanding international economy for its vast reserves of energy and other natural resources. The Soviet Union had broken up but it had not been defeated militarily or occupied, and although some attempts were made to westernize and liberalize the new Russia, they had only partial success. Under Boris Yeltsin’s successor, Vladimir Putin, Russia began to assert an identity and interests which were distinct, signalling its intention that it would not be incorporated into the West and would continue to form a pole on its own.

By the beginning of the twenty-first century the trend towards multipolarity and away from unipolarity was captured in the acronym of the BRICs. Coined by Jim O’Neill at Goldman Sachs, this acronym brought together Brazil, China and India with Russia, characterizing these four as rising powers which because of the size of their territories and their populations constituted a counterweight to the established Western powers (O’Neill 2001). Although there were some attempts during WTO negotiations to get the BRIC countries to co-operate and co-ordinate their negotiating strategy, in general their interests were too divergent. They did not form a bloc. However, each one was potentially so large that they did not need to do so. Each one was potentially a pole of a new multipolar international order. The rapid development after 2000 of another group of countries with substantial territory and population showed how variegated the international economy was likely to become. This group included Nigeria, Mexico, Indonesia and Turkey, and was labelled by O’Neill the MINTs (O’Neill 2013).

The sign that something profound was taking place was the estimate by the UN in 2001 that for the first time in human history the number of people living in cities now exceeded the number living on the land. It still meant that there were huge numbers engaged in subsistence agriculture, but it signalled that a very different international order was now arising, one which would eventually no longer be dominated by the Western powers. The West in the form of first Europe and then the United States had created the international market order of the modern world and dominated it for the past 250 years. The leading powers in 2000 were the same as they had been in 1900, with the exception of Japan. This is very unlikely to be the case in 2100, or even in 2050. In the period before 1914 the world was multipolar, but the poles were mostly within Europe, which dominated much of the rest of the world through its colonial empires. There was nevertheless after 1815 a degree of co-operation between the European powers and a common framework of rules and standards established through the economic and financial hegemony of Britain. This all broke down after 1914 and three decades of multipolarity without co-operation ensued, resulting in two world wars and the collapse of the liberal international order of the nineteenth century.

Stability was restored after the Second World War through the reconstruction of a liberal international order under American leadership which included Western Europe and important parts of East Asia. The bipolar security relationship was at first extremely tense but over time grew more stable and predictable. The advent of unipolarity seemed to presage a new era of harmony and stability, but this was quickly dispelled, first by a new phase of wars and interventions, particularly after 9/11 (and the war on terror), and secondly by the way the forces unleashed by globalization themselves undermined unipolarity. The world is now in transition between a unipolar and a multipolar world. In certain respects the world is still unipolar, particularly in terms of military capacity. The US continues to outspend all other countries by a large margin, still has its network of 700 military bases around the world and enjoys a marked superiority both in weaponry and in its capacity to project its power. Despite the difficulties the United States has faced in winning small wars and making occupations successful, it still faces no major geopolitical threat from any other power. The main driver for multipolarity comes in the economic and social spheres. This poses a major challenge for US leadership, raising the question of how the rising powers can be incorporated in a stable system of multilateral governance. As the example of the first half of the twentieth century shows, there is no automatic link between multipolarity and multilateralism. It is possible for multipolarity to be associated with conflict and fragmentation. In this case, economic blocs also tend to become military blocs.

The multilateral framework is still holding but it has become subject to great pressure. One of the main reasons for this is the 2008 financial crash and its aftermath. It is often described as a global financial crisis, but at first it was much more regionally specific. It primarily affected the financial systems and economies of North America and Europe and, in particular, those of the United States and the United Kingdom. The eurozone appeared at first relatively shielded from the financial meltdown which was regarded as primarily a phenomenon of Anglo-Saxon capitalism. The rising powers appeared even less affected. While output plunged in North America and Europe by up to 9 per cent in 2009, the worst recession since 1945, the rising powers continued to grow, despite the large reduction in demand for their exports. It seemed to be a turning point. The rising powers appeared to have achieved a level of development which made them independent of what happened in the rest of the international economy. If this were true it would have meant a dramatic acceleration towards multipolarity.

At first the international community behaved as though it were true. The crisis brought home the new reality in the international economy. The G8 was marginalized and instead the G20 was used as the forum for discussing the crisis and what should be done about it. The G20 included all the members of the G8 – USA, Japan, Germany, France, UK, Italy, Canada and Russia – but also China, India, Brazil, Mexico, Indonesia, Turkey, South Africa, Saudi Arabia, South Korea, Australia and Argentina, as well as separate representation for the EU. Although this body still excluded almost 90 per cent of the member states of the United Nations (Payne 2010, Wade and Vestergaard 2012), it accounted for 85 per cent of global GDP and was much more representative than previous bodies. The summits established a new permanent secretariat located in Geneva rather than Washington, and embarked on some significant discussions about the future of financial regulation. The new focus on the G20 seemed to signal a move towards a more representative form of governance for the international economy.

The aftermath of the 2008 crash has been complex. Instead of a normal V shaped recovery common after previous recessions, the recovery proved fitful and subject to setbacks. A second wave of the crisis affected the eurozone in 2010–12 with a sovereign debt crisis which seriously impacted the performance of the rest of the EU as well as the US (Lapavitsas 2012). It highlighted the way in which almost all the Western economies were entering a long period of slow and painful restructuring. The strength of the forces pushing the Western economies into deflation was shown by the low level of interest rates in the US and the UK, still only just above zero, five years after the crash, as well as by the scale of the quantitative easing which the central banks employed to keep their banks afloat and asset prices high (Gamble 2014). Governments adopted austerity and retrenchment packages (Blyth 2013), but debt levels at the end of five years were still very high. The risk of some economies slipping into a deflationary trap like Japan in the 1990s remained real (Koo 2009). Although the US and the UK economies began recovering strongly in 2013/14, the prospects for a sustained recovery remained clouded. One reason for this was that from 2013 a third phase of the crisis seemed to be gathering force, with problems now occurring in the rising powers, with marked slowdowns in growth in Brazil, India and even China. In 2008/9 China had avoided any adverse effect upon its own economy from the downturn in Western economies by launching a major fiscal stimulus. This succeeded in maintaining high rates of growth but at the expense of creating a major credit bubble and over-investment in infrastructure projects and housing where there was no identifiable income stream. A major correction appeared inevitable. How much of a shock it would provide to the rest of the international economy depended on whether China could successfully manage to remove the excess credit avoiding an uncontrolled collapse. It was clear, however, that by 2014 all parts of the international economy had been affected by the 2008 crash, although in very different ways, and the path to sustainable recovery, and the regaining of the levels of growth experienced before the crash was going to be much harder than originally anticipated.

The Uncertainties about TTIP: Between a New US primacy and a Fragmented New Medieval System

This is the context in which the options for the transatlantic partnership are being discussed and in which the specific proposal for a free trade agreement between the United States and the EU has been made. In the past few years many of the assumptions of the post-Cold War period have been called into question, and the nature of the transatlantic partnership has been one of them. The end of the Soviet Union and the enlargement of the European Union removed the security issues which had made NATO such an important alliance, the bedrock of European security. In the new era of liberal peace in the 1990s, many European countries saw little need to maintain defence spending at its previous levels and this is a trend which has continued. In the phase of liberal war (the war on terror) which succeeded liberal peace the United States became increasingly irritated and frustrated with many of its European allies, accusing them of free-riding on the US security guarantee and not being prepared to make the hard choices to defend themselves and the West. These recriminations came to a head at the time of the Iraq War (Kagan 2004).

Such divisions in the alliance prompted speculation that the US and Europe would increasingly diverge. The need for security co-operation was lessening and European publics gave little support to the foreign policy stances which the US was taking, particularly once neo-conservatives were in the ascendancy in Washington after 9/11. Similarly, US and European interests in economic policy seemed to be diverging as well. The European social model was regarded by many in Europe as a better model than the Anglo-American free market model, and they thought themselves vindicated by the events of the 2008 crash. There were suggestions before the crash that the EU might increasingly form its own economic pole in the new multipolar world, offering a different model of political economy and a different model of governance to the rest of the world (Telò 2006, Rifkin 2005). There was never any intention to break with the United States; the two economies had become increasingly intertwined and the role of the US in providing public goods was still acknowledged. Nevertheless the euro project itself was in part conceived as the means by which the ‘exorbitant privileges’ which the United States enjoyed from possession of the dollar could gradually be reined in (Eichengreen 2012). The euro, once established, was seen as having the capacity to be an alternative reserve currency which other countries might come to prefer to the dollar. Although many argued that the EU remained subordinate to the US and worked within limits established by it (Cafruny and Ryner 2007), there were signs of an increasing European autonomy, noticeable for example at the Doha Round negotiations in the WTO. The Europeans in trade matters at least reached a common negotiating position and acted as a bloc. The potential for doing so in other fields was evident to many observers. It seemed to spell a gradual loosening of ties with the US and a more antagonistic relationship.

The 2008 crash has changed many of these calculations. In its aftermath, the eurozone plunged into a deep crisis from which it is only now emerging and many European economies remain very fragile. Several have still not regained the level of output they had in 2007. The crisis has drawn attention to how much the world has shrunk and how large other parts of it have grown. The Eurocentrism of the past is rapidly fading and the world is being rebalanced. Yet Europe and the US still command close to 50 per cent of global GDP, and although this will steadily decline, they still possess all the advantages of their accumulated wealth, infrastructure and human capital. The rules have been set in ways which benefit the established powers and their interests. Faced with the rise of India, China and the other new powers, the response from the European Union has been twofold. On the one hand, there is the desire to exploit the opportunities which a multipolar world provides for increasing trade and investment, if necessary forming new bilateral links with the rising powers in case multilateral links are not possible. The huge opportunities which the new growing markets of the East and the South represent are seen as essential for future growth prospects. On the other hand, the emergence of a multipolar world in which Europe is no longer the centre of the world but only one pole within it is an alarming prospect, since there is no guarantee that in the new world order as it develops there will be the same priority given to Western rules, procedures and interests. Such considerations make Europeans feel more kindly disposed towards the United States. As Hilaire Belloc advised about the boy who ran away from his nurse and was eaten by a lion: ‘Always keep a-hold of nurse, for fear of finding something worse’ (Belloc 1987).

One of the key factors in shaping whatever new order now emerges is the response of the United States to the emergence of a multipolar world. If multipolarity becomes established, it will mean a significant diminution in the power of the United States. Although formally the world only became unipolar after the end of the Soviet Union, the two rival spheres of interest which made up the bipolar Cold War system were both organized along unipolar lines with one dominant hegemon at the centre of each. The United States has enjoyed this status now for 70 years and its political class shows no inclination to abandon it. This will make the transition to a new order with a multilateral system of governance difficult to accomplish since that would require substantial concessions from the United States to create a system of collective governance (Ikenberry 2012, Kupchan 2013). The US would clearly prefer to remain the global leader, shaping the rules of the international order and being their ultimate guarantor. Other states including the rising powers would be encouraged to participate fully in the existing international order. As the deadlock in the Doha Round at the WTO shows, this is unlikely to be acceptable to many of the new players. The rising powers proved strong enough to block the kind of agreement which the US and the EU sought. A way through the deadlock has so far not been found.

Yet the US has been prepared, as noted earlier, to acknowledge the need for new systems of governance. It agreed to the enhanced profile for the G20, and encouraged a new system of financial regulation, and a new regulatory institution, the Financial Stability Board, to be established after 2008. Similarly it proposed increases in the voting shares of key rising powers including China and India on the IMF, mainly at the expense of the Europeans. But the US retained its own 15 per cent share and the right that gives it to a veto over any decisions the Fund reaches. The real test of US intentions will come when the rising powers’ stake in the international economy means that one or more of them become entitled to shares equal to that of the US itself (Wade 2011). The EU could claim such a share now, but the wish of its largest members to retain individual representation on bodies like the IMF prevents that. The same is true of the UN and the G20. The failure of member states to allow the EU to represent them on all international bodies is a significant weakness, since it means that there is often confusion as to what the EU position is. It also has the effect of reinforcing the subordination of the EU to the ...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Figures and Tables
• List of Contributors
• Foreword
• Acknowledgements
• List of Abbreviations
• Introduction
• PART I: THEORETICAL AND HISTORICAL CONTEXT
• PART II: NEGOTIATIONS, ACTORS AND AGENCIES
• PART III: KNOCK-ON EFFECTS AND UNINTENDED CONSEQUENCES FOR THIRD PARTIES
• PART IV: IMPACT ON MULTILATERAL INSTITUTIONS AND REGIME COMPLEXES
• Bibliography
• Index