How strategic is the Pact?

The European Union is having to negotiate a free trade agreement with a partner whose economic clout and development status matches its own.

Never in its history has the EU negotiated a free trade agreement, which explains the level of attention and controversy the negotiations for the proposed Transatlantic Trade and Investment Partnership (TTIP) have aroused among Europeans. This seems mainly to do with having the United States as the negotiating partner. No previous agreement has been concluded with a partner of equal market size, none has come even close to matching the sheer breadth of mutual trade and investments, and no negotiating partner has ever involved a country with greater political clout. Europeans are used to seeing their EU representatives splitting hairs over the extent to which their preferences, norms, standards and procedures are to be accommodated. TTIP is unique on all counts and so are these negotiations in the eyes of Europeans, both among the supporters and critics.

EU actors put high expectations on TTIP as a means of improving access to the US for European companies, especially a large number of small- and medium-size enterprises (SMEs), thereby enhancing the competitiveness of European businesses on a global scale. Seen in this light, TTIP would seem to favour industrial policies that promote SMEs. Its critics however make the opposite case. In their view, the agreement is likely to be tilted towards big business. NGOs, trade unions and a number of political parties view TTIP as threatening European standards, job security and workplace conditions, and data protection. They are also adamant that the envisioned investor protection clauses could end up scuttling democratic governance. Since the economic gains from TTIP will be more limited than initially believed, geopolitics seem to be the core argument in favour of an agreement.

 A lack of clarity exists on what the strategic dimension of TTIP is actually supposed to be. Many political leaders have only considered the strategic value of an agreement in rather broad terms. They see it as a way of shaping globalization by setting reference standards for the world and reinforcing transatlantic relations in light of the resurgence of the geopolitical challenges posed by Russia’s annexation of Crimea and Sevastopol. Both aspects have drawbacks. Any impact on standards and rules can only be achieved through far-reaching harmonization or a comprehensive mutual recognition of an integrated transatlantic market, which seems rather unlikely given the reservations and the range of issues excluded from the treaty by both sides. Also, it is not easy to see how emerging powers are expected to impose their norms and standards on the West even without the TTIP agreement, given their dependence on access to European and North American markets. What’s more, the hope of consolidating Western interests through TTIP in order to strengthen defences against power politics may be forlorn. It would require an exceptionally high level of consensus for it to carry any weight. Conversely, the risk of failing to reach an agreement, bandied about by those opposing the strategy, seems a point worth taking. Any failure in developing universal standards could support the perception of a declining Western influence over global norms and rules and end up harming transatlantic relations. Many in the world would consider a breakdown in transatlantic partnership negotiations as an invitation to test its centrifugal potential further.

A more serious strategic case for TTIP appears if one focuses on the EU alone. In recent years, the EU has pursued a fairly active international trade policy to consolidate its market position and preferences at a time when the multilateral trade regime has been stagnant. For Europeans, the challenge is not to be left out in the cold as larger regional trade blocks thrive or sidelined by other global economic actors. With this scenario in mind, the EU has launched a series of negotiations involving a new generation of free trade agreements under its 2006 Global Europe strategy. This strategy targets markets with serious potential and responsiveness to EU exports in which the EU’s competitors, notably the US, Japan and China, have already concluded or are busy negotiating agreements.

Likewise, the EU wants to have its say in the development of mega-regional agreements, in particular the Trans- Pacific Partnership (TPP), the negotiations for which are at a much more advanced stage than the TTIP process and are being strongly backed by the US. From an EU perspective, mega-regional agreements such as TPP aim to strengthen global supply chains and, if they are viewed as a blueprint for an APEC (Asia-Pacific Economic Cooperation) free trade agreement, could seriously endanger the competitive position of the EU along with its rules and regulations. In this sense, TTIP would be the EU’s foot in the door, both reinforcing the significance of the European market for the US economy and binding the US to norms and standards negotiated with the EU, thus balancing out the strategic scope of Washington’s swing eastwards.

If this is the core of Europe’s strategic approach to TTIP, the case would have to be made strongly in public, even though it might weaken the EU’s bargaining position at the negotiating table. After all, the single-market project won the day because of the economic benefits it would bring and as a self-assertion of Europe. For Europeans, a compelling case has to be made for both aspects if support for TTIP is to be secured, but right now the political climate in Europe is unlikely to be very responsive.

The year 2015 is widely seen as a decisive period for the negotiations with US presidential elections looming on the horizon in 2016. To protect its strategic interests, EU negotiators should aim to reach a limited agreement soon rather than engage in lengthy discussions about a more comprehensive partnership. The highly controversial investment protection clauses should be left out.

Additional resources to the EU’s structural funds should be considered to balance the asymmetrical gains resulting from a transatlantic agreement and to support member states in overcoming any structural weaknesses in their export sectors. 

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