Unfounded concerns

Since July 2013 the major economic areas have been negotiating the biggest free trade agreement in the history of international trade. The Transatlantic Trade and Investment Partnership (TTIP) will affect one third of worldwide trade as well as about half of world production (figure).

In 2013, at almost € 90 billion, German goods exported to the USA represented some 8 per cent of all visible exports. The Cologne Institute for Economic Research (IW) thus estimates that around 600,000 jobs depend directly or indirectly on exports to the U.S..

TTIP can not only help to put these jobs on a secure long-term footing but also eliminate tariff and non-tariff barriers to trade and build a bridge between the regulatory systems in the EU and the USA. Furthermore, it should establish new standards in international investment agreements. The expected gains from trade creation are substantial – according to a study conducted by the Centre for Economic Policy Research in London (CEPR), TTIP will boost EU production by €119 billion a year. This translates into an extra €545 of disposable income for the average family of four in the EU. Moreover, increased competition will foster innovations, lower product prices for consumers and allow for higher product diversity on both sides of the Atlantic.

The advantages are obvious. However, one year after launching negotiations, scepticism has reached record levels. In Germany, for instance, it is a popular belief that TTIP would lower standards regarding consumer protection. Hormone-treated meat, genetically modified products and chlorine chickens – these are just a few examples which arouse fear in the German population when it comes to TTIP. And this despite the fact that agricultural products make up less than 1.2 per cent of German’s trade in goods with the USA .

And there are good reasons to believe that the fear is unfounded. Negotiators both from the EU and the US have stressed that TTIP is not going to lower standards in consumer and environment protection. Even Barack Obama and Angela Merkel have given their word.

The “I” in TTIP is also a point of discussion – it is not entirely unfounded, either, since investment treaties are fraught with serious drawbacks. The work of non-public international courts lacks transparency, and the legal concepts are vague. However, these critical points should not be understood as a plea not to include an investment chapter into TTIP. Quite the contrary – TTIP represents an excellent chance to reform international standards regarding investment treaties. The biggest industrialised countries worldwide should take this chance and address the existing problems. UNCTAD has taken this challenge and identified possible reference points to start with in its World Investment Report. The measures include, for instance, reducing the subject-matter scope for claims, creating a standard international court of judges appointed by states and providing more transparency.

In the view of the Cologne Institute for Economic Research TTIP must anyway be seen in a wider context. The IW points out that for Europe there is a geopolitical question to be answered: whether Europe wants to form a G3 with the USA and China and jointly shape the destiny of the world, or be content to sit on the sidelines and watch.

Moreover TTIP could help to breathe new life into the organisation of world trade: The partnership would surely put pressure on the emerging nations to cooperate more on trade policy. If new multi- or plurilateral agreements are to be possible, however, the EU and the USA must themselves do all in their power to strengthen the structures of world trade.