It's About Investments, Not Just Trade
TTIP is more than a simple free trade agreement, it is a geopolitical alignment that promotes smart economics and strengthens the democratic values. Ratifying TTIP would create two million extra jobs in the US and EU, and result in more choices, higher quality and lower prices for consumers. The timing is perfect to ensure success in the TTIP negotiation, and it would enable both sides of the Atlantic to crystallize their common ideals and interests in the global economy.
The transatlantic business relationship between the US and the EU is one of the world's most enduring success stories. It is also the world's largest and most integrated force in the global economy. It accounts for half of the global economic output and 41 percent of global purchasing power. While emerging economies are on the rise, the US and EU still remain each other's most important markets generating $5.3 trillion in total yearly commercial sales and employing more than 15 million workers on both sides of the Atlantic.
So the question is how to improve on this success? One immediate option is to find agreement on the proposed Transatlantic Trade and Investment Partnership (TTIP). If ratified, this agreement would boost the combined GDP of Europe and the US by almost 1 percent in the short to medium term. A market practically free of tariffs and barriers is estimated to potentially generate an extra $150 billion annually for the EU, and $120 billion in the US. In practical terms, this equates to two million extra jobs, more choices, higher quality and lower prices for consumers.
TTIP should not be considered only a free trade agreement. Tariffs are already at very low levels, at an average of 4 percent, despite few heavily regulated and protected industries with extreme tariff peaks such as textiles, motor vehicles and agriculture. However, it is unlikely that the tariff elimination alone, even if a "transatlantic zero" is achieved, would lead to very strong welfare aggregates, although given the size of the transatlantic economy, even small changes can have large effects, especially when it comes to intra-industry and intra-firm levels.
Estimates are that more than 80 percent of the gains from TTIP would actually come from areas outside of the tariff cutting measures. This would be achieved by moving the transatlantic regulatory regimes closer and by addressing the non-tariff barriers (NTBs). The biggest challenge for negotiations will be identifying and quantifying statistically the NTBs. It's understandable that a 100 percent elimination of NTBs would not be possible because many reflect differences in language, culture, geography, and consumer's preferences. However, the aim should be to align the regulatory systems as much as possible, or accept a mix of cross-recognition of standards to reduce these barriers. According to the Transatlantic Economy 2014 annual survey, if only half on NTBs are harmonized in transatlantic commerce, it would add 0.7 percent to the size of the EU's economy and 0.3 percent to US's economy by 2018.
From a strategic economic perspective, TTIP is as much about investments as free trade. Mutual investment is the backbone of the transatlantic economy. At more than $4 trillion in mutual investments, the US and EU are each other's primary source and destination of Foreign Direct Investment (FDI). This is important because FDI is a symbol of the deepest form of economic integration. While the US remains the largest venue for attracting FDI globally, Europe is the number one destination of American FDI. Statistics show that in 2013, American investment in the Netherlands alone was approximately 4 times larger than in all of the BRICs countries.
Despite large volumes of investment, regulatory procedures on both sides of the Atlantic often raise the cost of doing business while dragging down productivity. While labor protectionism is a normal cause for concern in any trade agreement, it is interesting to note that most foreigners working in the transatlantic labor market actually come from the EU and US. Therefore, TTIP stimulated trade would benefit the EU and US labor markets, both in terms of new job opportunities and overall wages.
The timing is perfect to ensure success in the TTIP negotiation. The rise of the new powers and the security challenges affecting Europe should help both sides of the Atlantic crystallize their common ideals and interests. A successful and comprehensive TTIP would serve to establish institutional and competitiveness standards for the 21st century open global market. TTIP is more than a simple trade agreement. It is a geopolitical alignment that promotes smart economics and strengthens the democratic values.
Dr. Valbona Zeneli is a professor of security studies and deputy director of the Central and Southeast European Program at the George C. Marshall European Center for Security Studies. Dr. Zeneli holds a doctor of science degree in political economy from the University of Bari, Italy, a postgraduate diploma on international marketing from Georgetown University and B.A. with honors in business administration from the University of Bologna.
The views presented are those of the author and do not necessarily represent the views of Department of Defense or its Components
This article was published in the second of three theme weeks for our project "TTIP: Myths vs Reality". An introduction of the articles for the week can be found here, and introductions of the other two weeks can be found at the top of the TTIP Forum.