New Rules of Engagement: Understanding TPP AND TTIP, With Valbona Zeneli

 

Since its founding in 1948, the World Trade Organization (WTO) and its precursor have remained quite tightly targeted on the trade and investment zone. With its particular focus on tariff reduction and trade negotiations, it serves as the pre-eminent glorious knight battling on behalf of consumers.

However, all that began to change in the past two decades. Success attracted allies. The number of WTO members rose from 27 in 1948 to 162 today. Decisions of the WTO remain consensus based, which means that all votes have to be unanimous. Pervasive terror threats, encouraged politicians to focus on the high-intensity and visibility politics of national security and war, as opposed to the low-intensity politics of trade and investment. Progress was also slowed due to shifts in the center of trade gravity and challenges in current markets by rapidly growing new competitors. The global recession intensified the tendency to ignore international economic issues, as attention shifted to domestic job creation and the protection of domestic credit markets. In consequence liberalization has stepped outside of the WTO. The last two decades brought a do-it-yourself approach, defined by mega-regional agreements and preferential pluri-lateral trade negotiations, tailored for only a limited number of players.

The Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) are key to this development. TPP is a free trade agreement covering 12 countries from North and South America to the Pacific Rim, while TTIP represents a free trade agreement between the United States and the European Union. The TPP negotiations concluded in October 2015 after four years of intensive talks. Legislative ratification will be the next step. TTIP has been under negotiation since June 2013; hopes are for completion by the end of 2016, making use of the transition time for U.S. administrations and Congress.

The combined trans-Pacific and trans-Atlantic space covered by these agreements encompasses 60 percent of the world economy, and 22 percent of its population, according to the International Monetary Fund.

But the economies differ in terms of per capita incomes and living standards. The TPP economies represent 27.3 percent of world GDP and 10.7 percent of the world’s population. The TTIP economies represent 33 percent of world GDP, with 11.2 percent of the population. However, there are also notable differences in the scope and goals of the agreements themselves. TPP is focused at opening markets and eliminating tariff barriers on trade and investment. TTIP mainly concentrates on tackling costly non-tariff barriers and strengthening Foreign Direct Investment (FDI) rules.

Trans-Atlantic average tariffs at 4 percent are much lower than the trans-Pacific ones. TTIP is much more about investments than free trade, with both parties extensively embedded in each other’s economies. Such relationship has produced more income, created more jobs and generated more wealth than trade alone.

TTIP is more ambitious in comparison to TPP. In addition to to the financial and economic benefits, TTIP will have a larger geostrategic impact, since it reinforces the strong ties that exist between Europe and the United States. TTIP is a natural Western partnership, with mature, well-developed and consolidated markets, and a strong mutual defense relationship based on the North Atlantic Treaty Organization (NATO). Both components are missing in Asia. However, this might change with a tumultuous re-formation of the EU and perceived instability of the region.

Economic realities emphasize TTIP as well. The trans-Atlantic economies are the innovation powerhouses of the global economy, and a crucial element of future growth and balance. The United States and the EU are by far the two largest trading blocs in history. Given the size and scope of the trans-Atlantic economy, standards negotiated by the United States and the EU could become a leading benchmark for future global rules, and slow down the acceptance of competing standards.

TTIP and TPP are strategically interlinked with each other. Both agreements are important in terms of how the various partners, including the pivot of the United

States, jointly relate to newly rising powers, and whether the West still has the energy and dedication to set new standards for the international economic order. Both TTIP and TPP take on an increasing strategic importance in light of the continuously growing role of China, and other emerging markets in the global economy. A simplification of trade and investment relations via the two agreements would also push the WTO to expand its useful life.

TPP is also important for the EU. Higher growth rates in the trans-pacific region will help Europe through increased exports. TPP also reinforces the geopolitical reality of rebalancing Asia.

Achieving progress in the simplification of trade and investment relations is important to global prosperity. The approaches taken by TPP and TTIP may well indicate the future of trade negotiations – tightly focused talks between selected participants aiming for improvements in fields of comparative advantage within a clearly defined time frame.

Michael Czinkota (czinkotm@georgetown.edu) works at Georgetown University and is a former Deputy Assistant Secretary of Commerce in the United States Department of Commerce. His key test is International Marketing, 10th ed. Cengage

 

Valbona Zeneli (valbona.zeneli@marshallcenter.org)  is a professor at the George C. Marshall European Center for Security Studies. The views presented are those of the author(s) and do not necessarily represent views and opinions of the Department of Defense or the George C. Marshall European Center for Security Studies.

The TPP: International Law and Geopolitics

After seven years of negotiations, the Trans-Pacific Partnership (or TPP) has finally been agreed upon by the twelve signatories. The parties involved are the United States, Canada, Mexico, Singapore, Brunei, New Zealand, Chile, Australia, Peru, Vietnam, Malaysia, and Japan. There has been significant controversy regarding the TPP from within the United States, with naysayers arguing that the benefits accruing from the TPP are minimal, and that the US already has bilateral trade agreements with most (if not all) the participating countries, making the bulky agreement redundant. Yet there do exist considerable advantages for the US from the conclusion of the TPP negotiations. To name but a few, the TPP has ensured the updating of the frameworks applied to multilateral trade agreements. It also allows for the harmonization and regulation of standards across a global and dispersed supply chain.

A significant worry has been the investor-state dispute settlement mechanism (ISDS), key buzzwords thrown about by the American and international media. The inclusion of the ISDS in the TPP has been regarded by some, most notably Elizabeth Warren, senator from Massachusetts as a threat to regulatory sovereignty. It allows for corporations to sue governments for changes in the regulatory environment that have adverse impacts upon the former. The legal provision, however, does not allow the reverse, i.e. governments cannot take legal action against firms. Nevertheless, the inclusion of the ISDS is a major development for international law precedent, which has typically been restricted to matters of interstate disputation.

The glaring exclusion of China from the agreement has been highly debated in the intellectual circles of Washington. Some have argued that the nation chose to stay aloof – that the Chinese economy has outgrown the “meager” benefits that could accrue to it from the TPP that pale in comparison to the restrictions and conditions that China would have to meet if it joined. Optimists hope that the coalition of participating countries will be able to contain, offset and challenge China’s rapid relative economic ascent. They suggest that the success of the TPP will lead to a clamor by countries like China and India to be included, the conditions of which would be set by the triumphant and advantaged existing members. Whatever the future of China in relation to the TPP may be, its current exclusion clearly limits its geopolitical reach.

 

Michael R. Czinkota (czinkotm@georgetown.edu) teaches international business and marketing at Georgetown University’s McDonough School of Business. His key books is International Marketing, 10th edition.

News from the USTR: TTIP Update from Brussels

Today, the United States Trade Representative Michael Froman addressed the Transatlantic Trade and Investment Partnership during his stay in Brussels.

Highlights:

“Today, the U.S. and the European Union are each other’s largest economic partners, with $2.6 billion dollars’ worth of goods and services flowing between us each day. We invest nearly $4 trillion in each other’s economies, creating the world’s largest investment relationship. And more than 13 million people owe their jobs to the transatlantic economic relationship. The U.S.-EU economic partnership is second to none.

“But we know that we can do more. We can do more for economic growth. We can do more to create jobs. We can do more to strengthen rules-based trade that supports the entire global trading system.

“And that is precisely why we launched the Transatlantic Trade and Investment Partnership, or T-TIP. Together with the Trans-Pacific Partnership, or TPP, and the work being done at the WTO to negotiate a multilateral Trade Facilitation agreement, a plurilateral Trade in Services Agreement (TISA) and an expansion of the Information Technology Agreement (ITA), we see T-TIP as an opportunity to raise the standards, to introduce new disciplines and ultimately to strengthen the multilateral trading system.

Read more here.

Jeopardy!

There is more than one United States in the Western Hemisphere. Can you name all three?

 

Answer in the comment section below. The answer will be revealed at next week’s “Jeopardy!”

Answer to last week’s “Jeopardy!”: Which countries are involved in the TPP? The current members are Singapore, Chile, New Zealand, Brunei, Australia, Peru, Vietnam and the US. Read more about the TPP at: http://www.ustr.gov/sites/default/files/TPPFAQ.pdf