Rule-Makers or Rule-Takers?

Exploring the Transatlantic Trade and Investment Partnership

Jacques Pelkmans, Daniel S. Hamilton

• Editore: Centre for European Policy Studies
• Anno: 2015
• ISBN:
  9781783487127
• Edizione: 1
• Argomento: Economics
• Categoria: International Economics

The Transatlantic Trade and Investment Partnership (TTIP) is an effort by the United States and the European Union to reposition themselves for a world of diffuse economic power and intensified global competition. It is a next-generation economic negotiation that breaks the mould of traditional trade agreements. At the heart of the ongoing talks is the question whether and in which areas the two major democratic actors in the global economy can address costly frictions generated by their deep commercial integration by aligning rules and other instruments. The aim is to reduce duplication in various ways in areas where levels of regulatory protection are equivalent as well as to foster wide-ranging regulatory cooperation and set a benchmark for high-quality global norms.
In this volume, European and American experts explain the economic context of TTIP and its geopolitical implications, and then explore the challenges and consequences of US-EU negotiations across numerous sensitive areas, ranging from food safety and public procurement to economic and regulatory assessments of technical barriers to trade, automotive, chemicals, energy, services, investor-state dispute settlement mechanisms and regulatory cooperation. Their insights cut through the confusion and tremendous public controversies now swirling around TTIP, and help decision-makers understand how the United States and the European Union can remain rule-makers rather than rule-takers in a globalising world in which their relative influence is waning.

PART I

RULES, NORMS AND STANDARDS

1. RULE-MAKERS OR RULE - TAKERS? AN INTRODUCTION TO TTIP

DANIEL S. HAMILTON AND JACQUES PELKMANS

1. The transatlantic economy, now and in the future

Despite the rise of other powers, including many emerging growth markets, the United States and Europe remain the fulcrum of the world economy, each other’s most important and profitable market and main source of ‘onshored’ jobs. The transatlantic economy generates $5.5 trillion in total commercial sales a year and employs up to 15 million workers in mutually ‘onshored’ jobs on both sides of the Atlantic. It is the largest and wealthiest market in the world, accounting for over 35% of world GDP in terms of purchasing power.¹

No other commercial artery is as integrated. Every day roughly $1.7 billion in goods and services crosses the Atlantic, representing about one-third of total global trade in goods and more than 40% of world trade in services. Ties are particularly thick in foreign direct investment, portfolio investment, banking claims, trade and affiliate sales in goods and services, mutual R&D investment, patent cooperation, technology flows and sales of knowledge-intensive services. Together the United States and Europe accounted for 70% of the outward stock and 57% of the inward stock of global foreign direct investment (FDI) in 2013. Moreover, each partner has built up the great majority of that stock in the other’s economy. Mutual investment in the North Atlantic space is very large, dwarfs trade and has become essential to US and European jobs and prosperity.

But the primacy of the transatlantic economy should not be taken for granted. Due to the rise of emerging markets, the share of global trade accounted for by the EU and the US has fallen and China is set to overtake both soon to become the single most-important trading power in the world. The United States remains by far the largest single bilateral export market for the EU, but its share in overall EU exports has fallen from about 27% to less than 20%, whereas that of China has almost doubled over the last few years. On the import side, the US ranks now only third for the EU. In the longer run, the transatlantic economy is bound to decrease in relative size in the world economy. Extrapolations for 2050 suggest that China will be of an economic size equal to transatlantic GDP, and India, Brazil and other rising economies are becoming increasingly integrated into the global economy.

2. TTIP’s rationale: Three drivers

In short, the world that created the original transatlantic partnership is fading fast. Each side of the Atlantic is facing daunting economic challenges at home and abroad. In this context, the United States and the European Union initiated negotiations on a new Transatlantic Trade and Investment Partnership, known as TTIP, which was born of a realisation on each side of the Atlantic that Americans and Europeans must work with greater urgency to build a partnership that is more effective in generating economic opportunity and confidence at home; engaging rising powers; and strengthening and extending basic norms and principles guiding the international system.

A first and prominent driver behind TTIP is a new and common recognition among US and European leaders that they need to act more urgently to open transatlantic markets in ways that can position each partner, and both together, to succeed in a world of diffuse economic power and intensified global competition. The addition of four billion people to the globalised economy and the rise of other powers, together with recent Western economic turmoil, have convinced US and European decision-makers that the window of opportunity may be closing on their ability to maintain high labour, consumer, health, safety and environmental standards and to advance key norms of the liberal rules-based order unless they act more effectively together.

For more than two centuries, either Europeans or Americans, or both together, have been accustomed to setting global rules. In the post-World War II era, the US and the evolving EU, each in its own way, has been a steward of the international rules-based order. Yet, with the rise of new powers, the resurgence of older powers and the emergence of serious challenges at home, Europeans and Americans now face the prospect of becoming rule-takers rather than rule-makers, unless they act more effectively together to ensure that high standards prevail.²

Given these considerations, TTIP’s potential economic value extends beyond the transatlantic market itself. Properly constructed, it can also be a useful policy initiative to help open global markets. TTIP reflects a growing recognition on both sides of the Atlantic that the United States and the European Union must invest in new forms of transatlantic collaboration to strengthen multilateral rules and lift international standards. Given the size and scope of the transatlantic economy, standards negotiated by the US and the EU can quickly become a benchmark for global models, reducing the likelihood that others will impose more stringent, protectionist requirements for either products or services, or that lower standards could erode key forms of protection for workers, consumers or the environment. Given deep transatlantic economic integration, the benefits of such an initiative to both parties could be substantial. And given that the transatlantic economy remains the fulcrum of the global economy, there could be significant positive spillovers to third countries in rules, standards and regulatory affairs.

A second driver is the ongoing evolution in the nature and scope of global trade negotiations. Europeans and Americans share an interest in extending prosperity through multilateral trade liberalisation, yet the primary multilateral trade negotiation, the Doha Round, has been at a standstill for some time. Far greater dynamism is apparent with regard to preferential trade agreements (PTAs), which already govern over 50% of world trade and are likely to shape the nature of commercial connections across the Atlantic and around the world in coming decades. Mega-regional trade agreements are likely to be particularly important -- not only TTIP but also the 12-nation TPP (Trans-Pacific Partnership) and the Regional Economic Comprehensive Partnership (RECP) involving more than 20 countries in Asia. Negotiations to establish a preferential Trade Agreement in Services (TISA) currently involve 50 countries accounting for over 68% of global trade in services, including the US and the EU.

These mega-regional arrangements and a number of other ‘deep-integration’ PTAs seek to go beyond tariff reductions to define new structures and modalities for all sorts of non-tariff barriers to trade, along with new rules for important trade-related issues such as investment and competition, and new concerns e.g. environment, climate, labour, food scarcity, animal welfare, privacy standards and mounting consumer pressures.³ The EU and Japan, for instance, launched negotiations towards a deep free trade agreement that includes regulatory issues, and the EU-Canada CETA agreement, which also touches on rules, standards and regulatory issues, has been successfully negotiated (although at this writing not yet ratified).

As these initiatives all went forward, it was becoming increasingly odd that leading trading partners such as the United States and the EU had not advanced their own efforts together. On both sides of the Atlantic, more and more voices argued that it was in the enlightened self-interest of both parties to undertake an exemplary initiative in earnest.

Moreover, US-EU agreement via TTIP has the potential to unblock the WTO Doha negotiations and jumpstart multilateral negotiations, just as NAFTA helped jumpstart Doha's predecessor negotiation, the Uruguay Round, and US-EU negotiations on an Information Technology Agreement also eventually became the basic multilateral agreement in this area. Moreover, even a successful Doha Round agreement would not address a host of issues that are not part of its mandate and yet are critical to the United States, the European Union and the global economy. In this regard TTIP can be a pioneering effort to extend the multilateral system to new areas and new members.

Third, global value chains (GVCs), which render a country’s exports essentially the product of many intermediate imports assembled in many other countries, are revolutionising trade in both goods and services, with important implications for the conduct and priorities of trade negotiators and for our understanding of the transatlantic economy.

In today's global economy, a good produced in the United States and exported to the EU might include components from Mexico or China, using raw materials from Canada or Australia or services from Turkey or Switzerland. Goods and services are increasingly from ‘everywhere’, rather than exclusively from ‘somewhere’, as they are defined today.⁴ They are unlikely to be fully “made in Germany”, and “made in China” does not necessarily mean “made by China”.

This growing process of international fragmentation is changing our traditional understanding of the patterns and structure of international trade. Traditional measures do not show how supply is driven by the final customer or reveal where the creation of value-added occurs, in terms of wages and profits. They also underplay the role of services in overall trade.⁵ The OECD and the WTO have now created tools that are transforming our understanding of trade flows by revealing what was hidden before. This new ‘value-added’ approach tracks the direct and indirect flows of value-added associated with international trade. It shows where value is actually created. Their findings lead to some surprising conclusions that reinforce our understanding of the dense binding forces of transatlantic integration.

Take German-US trade as an example. Under traditional measures, the United States ranked slightly behind France in 2009 as Germany’s major export market and ranked only fourth as an exporter to Germany, behind France, the Netherlands and China. But under the value-added approach, the United States jumps ahead to be both Germany's single most-important export market, accounting for 11% of German exports, and also Germany's most important supplier, accounting for over 12% of German imports.⁶ This bilateral trade relationship can also be seen as more lucrative than previously understood, since Germany exports and imports more to and from the United States in value-added terms than in gross terms.

The value-added lens also shows that US bilateral trade with many other EU member states, and with the EU as a whole, is even more important than previously understood. In value-added terms, the EU exports (and imports) relat...