A Brief Overview
As the world is in the long process of recovery after the global financial crisis, world leaders are still looking for a wide set of efficient ways to boost the global economy. One example of the proposed solutions is the Transatlantic Trade and Investment Partnership (TTIP), a free trade agreement between the EU and US.
Considering the fact that both are already key members of the World Trade Organisation and the economic barriers (e.g. tariff barriers) between them are already low, the partnership will mainly focus on reducing the duplication conflicts between the US and EU rules on the potential economic gains, as well as on reaching a common ground for the regulatory issues in the financial industry or for data protection laws differences.
The TTIP is also aimed at encouraging foreign investment and cooperation on e-commerce, leading to economic growth and prosperity on both sides. The partnership includes points on distribution of commodities, labour rights, SMEs, competition policies or intellectual property rights. Therefore, the European Centre for Economic Policy Research predicted that this agreement will bring an annual GDP growth of €68-119 billion to the EU, a growth of €50-€95 billion to the US and up to €100 billion to the rest of the world by 2027. Additionally, the European Commission sees a multitude of benefits in this partnership, including increased buying power for consumers, job creation and more business opportunities for the European enterprises.
However, many argued that the agreement may bring losses in terms of labour income or net exports, as well as increased unemployment in the EU countries due to US’s lower trade union rights or labour standards. A good example is a similar partnership, The North American Free Trade Agreement (NAFTA) that caused a loss of approximately 1 million jobs in US in 12 years.
The implementation of the TTIP may have consistent consequences for the European population, due to the will to reduce the EU food safety standards and allow genetically modified foods into the market. The introduction of the ISDS (Investor-State Dispute Settlements, an instrument that would allow companies to sue the governments if their policies may cause them a loss of profits) could truly harm the way policies are formulated and the competition in the business field, leading ultimately to a loss of economic growth.
Even though the representatives of both United States and the European Union are still far from an agreement concerning the data protection laws or the financial regulation, the introduction of this partnership will still lead to major changes in the world trade and the global economy. However, the TTIP will affect each country involved in many different ways due to the fact that each EU member has a different government that imposes different policies. For example, the Bulgarian government announced that it would only ratify the agreement if the United States cancelled the visa requirements for Bulgarian citizens. Also, the current Grexit situation in Europe might even lead to renegotiation of the entire agreement, excluding the Greek companies or government.
As the agreement is expected to have major effects on both sides, a few potential changes caused by the TTIP are presented below:
EU Food Standards
The TTIP will try to lower the EU food safety standards and bring them closer to those of the US by introducing genetically modified foods into the European markets. Even though the EU representatives are not keen to accept this, a final positive decision may provoke chaos in the food markets and an unpleasant reaction of consumer rights representatives. It could also affect the health and pharmaceuticals industry, due to unexpected consumer reactions on the GM foods.
The US is still reserved on accepting a co-operation on the financial regulation processes. As US regulation measures are more severe, reaching a common ground with the EU and loosening them might raise concerns of an increased global financial instability. However, an agreement on this issue could increase the activity on the markets and possibly the economic growth.
Furthermore, the US business groups would refuse EU data protection law implementation (they require a local storage of the consumer information). Therefore, this means increased costs for the companies but a stimulus to the technology industries that would supply the required products and services. On the other hand, the case of accepting US standards might lower EU privacy standards resulting in negative reactions of European consumers.
Oil and Gas
One key aspect of the free trade agreement is the US crude oil and gas supply. By convincing the US to loosen their crude oil and gas exports restrictions, the Europeans could be less dependent on the Russian suppliers, changing the facet of current geopolitical tensions.
One of the great aspects of the TTIP is the diversity it brings to the markets. Both the European and American consumers will have a wide range of choices when purchasing goods, meaning that the agreement will strongly contribute to the globalisation process. For example, the agreement could have strong consequences in the automotive industry, as there is already a large diversity in terms of cars’ features and models. This means the agreement will benefit both European and US manufacturers by decreasing import costs and boosting exports, leading to higher business profitability for both sides.
The TTIP fits into a large geopolitical picture, considering the latest tensions between the EU and Russia and the increased NATO military presence in the Eastern European countries. Considering the establishment of The Eurasian Economic Union at the start of 2015, the TTIP would be highly demanded in the current geopolitical context. However, it could further increase the tensions between Russia and the West, due to the fact that a division of world economies into large economic unions is more and more concrete.
Time is not an ally in this race to increase economic efficiency. There is a big necessity to finalise this free trade agreement before the US general elections take place in 2016, an event that could change the terms of agreement from an American perspective and lead to a whole different outcome in the global economy.
China overtook the US as the world’s largest economy earlier this year. Therefore, the TTIP could represent a strong factor of helping the US regain its place, as well as helping the EU cope with its difficulties in economic recovery, increasing global competition. As the Chinese investors are becoming more interested in European ventures, the TTIP could bring a fantastic opportunity for the EU, where a competition between the US and China could take place on the old continent’s markets resulting in a substantial increase of the foreign investments and economic growth levels.
In conclusion, the TTIP would represent a great opportunity for both the European Union and the United States, helping each other succeed in the global context and solve their current economic and political concerns.