Regulatory Cooperation will Provide a Geopolitical Advantage
The US and EU account for roughly half of the world's GDP, some thirty-percent of global exports, and each economy has more than a trillion dollars of investment in the other. There are three compelling reasons for the TTIP to succeed: improved market access including regulatory cooperation, developing new trade and investment rules for a new century, and forging a renewed Transatlantic Community in response to recent geopolitical developments.
Tariffs: in Europe and the United States tariffs are already low. As a result, estimates of the impact of tariff reduction are positive, but modest, with estimated gains of USD 3 billion in Europe and USD 4.5 billion in the United States. However, simplifying intra-firm trade could increase the gains significantly to some USD 80 billion for each party.
In making tariff concessions, the United States also will need to keep its negotiating eye on the Trans-Pacific Partnership negotiations, where Vietnam seeks greater access to the US market in apparel and shoes and New Zealand will want to be a larger dairy presence in the United States. The loss of tariff revenue will also have to be paid for under current US budgetary rules, but that should not be too difficult given the relatively small sums involved.
A TTIP agreement would also improve US access to Turkish markets because of their current trade agreement with the EU, but would not create improved access for Turkey to the US market. As a result, the United States will need to take Turkish interests into account.
Reforming Regulation: In the past, the United States and the European Union have found ways to harmonize some regulations or to forge Mutual Recognition Agreements of formally different standards. There is a great opportunity to do much more. The potential gains for TTIP could be substantial. For example a recent report of the Congressional Research Service highlights the automobile industry, in which regulatory standards in the transatlantic world require redesigning a large number of parts without there being any functional difference.
Negotiating the TTIP is not just a question of establishing common standards. In many cases, the EU and the US have different tolerances for risk with Europe often pursuing a more cautious approach. The US preference for science based evaluation of risk has not overcome all European resistance to genetically modified organisms (GMOs) or gained acceptance for the current US approach to preparing chicken.
A successful TTIP that included broad agreements on a host of regulatory standards would be a major step toward setting future global standards that could increase trade and significantly reduce the costs of maintaining global supply chains. Ideally, the TTIP will also create a forum for seeking common regulation of products and processes that have yet to be invented.
New Issues for a New Century
TTIP also creates an opportunity to explore areas that are not currently the subject of agreed international trading rules. The treatment of cross-border data flows will require delicate negotiations. TTIP could also attempt to develop new standards to protect foreign direct investments without tying the hands of national or regional governments seeking to develop new regulations in the fields of health, the environment, or employment. TTIP also opens the door to developing standards to deal with State Owned Enterprises, Sovereign Wealth Funds, undervalued currencies, and the challenge of persistent trade and current account deficits.
Rediscovering Transatlantic Geopolitics
At the end of the Cold War, the US and the EU put less emphasis on geopolitical challenges. In the last year, geopolitics has returned. The Russian annexation of Crimea and its active support for rebels in Eastern Ukraine put military challenges on Europe's doorstep. The continued rise of Islamic extremists has created a growing challenge to the transatlantic community's security and long-standing commitment to civil and human rights.
The importance of a renewed strengthening of transatlantic bonds makes a successful TTIP a geopolitical necessity.
Dr. Kent Hughes is a public policy scholar with the Global Europe Program at the Woodrow Wilson International Center for Scholars. He has also served as Associate Deputy Secretary at the U.S. Department of Commerce, president of the private sector Council on Competitiveness, and in a number of senior positions with the U.S. Congress.
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.