GUEST CONTRIBUTOR AT SAIS WASHINGTON
Grown out of the necessity to tackle the economic and financial predicament and the stalemate in multilateral negotiations inside the World Trade Organization (WTO), the Transatlantic Trade and Investment Partnership (TTIP) has gradually gained traction on both sides of the Atlantic over the last year. Launched in July 2013, the initiative, which is being negotiated between the US and the EU, aims to remove barriers to trade and investment, unnecessary regulations and, thus, inefficiencies across the Atlantic. If successfully hammered out, negotiations are expected to create the world’s largest free trade and investment area, with sizable gains for both the US and the EU – which represent 45 percent of global GDP and over a third of global trade.
Although barriers on a wide range of sectors are already low across the Atlantic, TTIP negotiations set out ambitious goals, namely a 100-percent reduction in transatlantic tariffs, a 25-percent reduction in the costs resulting from non-tariff regulatory barriers and a 50-percent reduction in procurement barriers. Were talks to achieve these objectives, the TTIP would prove a powerful trigger for job creation and growth in the US and Europe.
A recent study conducted by the Bertelsmann Foundation has estimated the economic impact of the implementation of the TTIP on exports and employment for each U.S. state. According to the study, all fifty states would witness a rise of jobs as well as a 33-percent increase in exports on an annual base. Moreover, by driving job growth in a range of industries, American households would stand to gain approximately $865 annually compared to $720 gained by their European counterparts.
Although benefits from the agreement would spread out by and large uniformly throughout the United States, six states are expected to get the lion’s share of those in terms of job creation attributable to the TTIP: California, Texas, New York, Florida, Pennsylvania and Illinois – followed by Ohio, Georgia, North Carolina and New Jersey. Differences in the types of goods produced, states’ level of integration into the supply chains and population size, as well as geography and characteristics of job markets are among the crucial variables accounting for the gains’ differentials across U.S. states. The model estimates that motor vehicles will be the top sector for export growth in nineteen states (many in the South), followed by chemicals (increasing sectoral exports for thirteen states) and metal products (seven states).
The automotive industry is supposed to be the chief sector reaping fruit from the TTIP. Nonetheless, it is also the one facing the thorniest issues that have been arising during negotiations. Indeed, U.S. and EU regulatory standards – not confined to the car sector – display significant differences, partly explained by historical and geographical reasons. The importance of overcoming regulatory divergences and giving way to fully complementary economies lies not only in the potential economic benefits from the TTIP, but also in Atlantic partners’ shared strategic interests. Specifically, it has been estimated that in 2014 Chinese customers will buy 22 million cars, each of them produced according to Chinese standards. U.S. customers are expected to buy 16 million and the Europeans 15 million cars, which are manufactured according to their own respective standards. Establishment of common transatlantic regulatory standards will conflate U.S. and EU markets and create an aggregate demand for 31 million cars, thus overtaking Chinese demand. In other words, the TTIP might prove a panacea against the harsh external competition which Western economies as a whole have been facing for more than two decades.
As a side note, the removal of restrictions would have the tonic effect of boosting integration among military industries. Transatlantic partners could freely exchange military equipment, technology, technical capacity and know-how. In addition to remarkable economic profits for weaponry manufacturers, this process would reverberate on the Atlantic Alliance in the form of improved standardization of and interoperability between weapon systems. In the light of the checkered situation unfolding in Eastern Europe, such potential developments in transatlantic military relations would have significant impact.
On the flip side, it is worth considering how the implementation of the TTIP would affect other economic giants such as Brazil. A rising chorus of voices warns that the transatlantic initiative – coupled with the Trans-Pacific Partnership (TPP) – would sound the death knell for the Brazilian economy. Brazil is grappling with massive capital outflows with cheap Chinese goods flooding the market. The TTIP would certainly wreak havoc on current global trade dynamics. Within such context, the need for Brazil to surmount structural deficiencies and revamp its economic model appears even more urgent to engineer growth and competitiveness.
For the time being, the TTIP is still going through its “honeymoon” phase. Potential benefits from its implementation are now galvanizing policymakers on both sides of the Atlantic. However, owing to the resistance from bureaucracies and interest groups over key sectors, as well as the presence of potential sticking points (the agricultural sector and food safety standards above all), dark clouds seem to be already gathering over the waters of the Atlantic.