TTIP: How to Minimize Risks For Third Countries
The implications of the Transatlantic Trade and Investment Partnership for the EU and the US have been widely discussed, but the effects of the deal on third party countries have received less attention. The risks it carries for those left out could be significant and contrary to global multilateral trade objectives. In light of these risks, TTIP should seek to be as open as possible.
The proposed Transatlantic Trade and Investment Partnership (TTIP) will affect not only its negotiating partners – the European Union and the United States – but also these partners' trade relations with third countries. Preferential trade agreements like TTIP allow like-minded states to pursue plans for trade liberalization that are more ambitious than those currently negotiated at the global level. Deeper transatlantic trade liberalization, however, weakens the relative position of producers in countries that trade with the EU and the US. TTIP may very well lead to losses in competitiveness and trade for third countries, especially if the agreement diverts trade to the transatlantic market more than it creates new trade flows. To alleviate such risks for excluded countries, TTIP should be as open as possible. The agreement should include an accession clause, extend regulatory cooperation to third countries and develop an inclusive set of rules of origin.
Include an Accession Clause
The EU and the US have already hinted at the potential for neighboring third party countries to accede upon the completion of negotiations. An explicit accession clause in the agreement would be the most comprehensive way to open TTIP to interested parties and to acknowledge their stake in preferential access to the transatlantic market. It would also be in line with the idea that free trade agreements do not necessarily undermine the multilateral trade regime but actually pave the way towards multilateral cooperation. The Trans-Pacific Partnership currently in negotiation between the US and 11 other Pacific states, for instance, will include such an accession clause for third countries.
However, acceding countries would have little influence on the contents of the agreement. The scope of renegotiations will be limited and apply mostly to market-access issues, like tariff schedules. In most other areas, new entrants would be forced to accept rules and standards previously negotiated between the EU and the US. This offer certainly would not appeal to developing countries that currently export to the EU and the US under preferential trading schemes. Instead, "Docking" other countries to TTIP would appeal primarily to those countries that have already negotiated their own bilateral trade agreements with one or both TTIP parties. This could help minimize potential losses in competitiveness and market shares. Accession, however, comes at a price: it forces third countries into the role of rule-taker and is clearly inferior to multilateral negotiations.
Extend Mutual Recognition of Standards to Third Countries
Regulatory cooperation will account for most of TTIP's potential benefits. Third countries fear advantages for European and American producers in this area. EU and US norms, standards and testing requirements vary significantly across many production sectors. This means that in order for countries to gain access to EU and US markets, imported goods and services must meet different standards in each market. While replacing individual standards with single norms or testing procedures could greatly simplify trade between partners and help alleviate the cost to third parties, such harmonization is extremely contested and will thus cover only a few narrowly defined areas.
For third countries, an alternative method of regulatory cooperation is more relevant. Mutual recognition refers to the idea that the parties accept each other's standards in cases where the level of protection is equivalent, even if the regulatory procedures differ. For third countries, it is important that mutual recognition be extended to their producers as well. Otherwise, only EU and US businesses enjoy the benefits of complying with a single standard, while exporters outside of the TTIP area face the additional costs of dealing with separate EU and US standards. This is especially challenging for producers in developing economies.
Simplify Rules of Origin to Increase Third-Country Market Access
Bilateral trade agreements distinguish between goods mainly produced in one of the partner countries and those that originate from non-member states. The latter are excluded from preferential market access. But in an era of global production, defining the origin of a product proves increasingly difficult and is subject to a complex set of rules. The EU and the US negotiate such rules of origin as part of TTIP, and they determine which products would benefit from preferential market access.
When it comes to third countries that are not party to TTIP, the threshold at which inputs are considered of domestic origin should be set as low as possible. This would reduce negative effects on these countries, and allow EU and US companies to source more raw materials or components from third-country providers without endangering the preferential treatment of the final goods. Furthermore, Cumulation of Origin could help to protect existing production networks and supply chains. Cumulation allows EU and US producers to practice similar treatment of input materials originating from a third country as it would products originating from inside of the TTIP area. This concept should apply particularly to developing countries. In addition, TTIP should lead to a simplification and standardization of "open" rules of origin. This would greatly improve the ability of third-country producers to save time and costs when exporting to both markets.
In the ongoing TTIP talks, it is important that negotiators do not lose sight of the agreement's openness to and accessibility for third countries. Such consideration could greatly reduce the risks for the multilateral trading system. Yet TTIP remains a bilateral free trade agreement that, by definition, prioritizes American and European producers over those from third countries.
Fabian Bohnenberger is a Research Assistant at the Global Public Policy Institute (GPPi). Clara Weinhardt is a Research Associate at the Global Public Policy Institute (GPPi).