TTIP’s Effects on the Global Economy

The proposed deal to reach an agreement — by the end of 2014 — on a transatlantic trade and investment partnership (TTIP), serving the world’s first and second biggest markets – the European Union and United States — is intended to deepen transatlantic relationship, assert global trade policy leadership and advance a rules-based system for the global governance.

In practical terms the deal is expected to boost combined GDP by almost 1% in the short term, add 2 million extra jobs and offer more choices and lower prices for consumers.

In spite of the advantages it should bring, the proposed Transatlantic Trade and Investment Pact (TTIP) has already met with opposition from global stakeholders, who point to several obstacles to the success of the agreement.

Effects on other trade deals?

One of the main points of criticism is that such a trade deal would put third countries — such as Canada, Mexico and Turkey, that already have bilateral agreement either with the U.S. or EU — at a disadvantage. Will it diminish the value of their agreements?

Another criticism is that the eventual deal would jeopardize the functioning of the WTO. Could it hinder successful conclusion of a multilateral agreement (i.e. the completion of the Doha Round)?

Many others cite the contentious history of the EU-U.S. over trade policies governing global agriculture, intellectual property and information technology.

Statistically speaking, modern empirical research suggests that the conclusion of important bilateral agreements actually increases the incentives of third parties to achieve further liberalization steps at a multilateral level.

This is also good for the rest of the world, given the integrated supply chains in today’s global market. Everyone can benefit from the agreement.

The need for integration

Policymakers have drawn lessons from the most recent economic downturn. These lessons reflect a new development paradigm and reveal that international economic cooperation and integration have become imperative for addressing the nature of new global challenges.

This shift towards broader agreements responds better to today’s economic realities, in which international trade and investment are increasingly interconnected. The main objective is the consolidation and harmonization of investment rules worldwide, creating a level playing field for competition.

Other agreements currently being negotiated are the Trans-Pacific Partnership Agreement (TPP) – linking North and South America with the dynamic markets across the Asia-Pacific region – as well as the EU-Japan and EU-Canada agreements, which are moving quickly toward finalization.

Does a regional agreement like the one between the U.S. and EU reduce the likelihood of successful reforms of the multilateral trade regime under WTO?

Building block or obstacle?

It has been demonstrated that regional integration efforts are neither a building block nor a stumbling block to the progress of multilateral liberalization. On the one hand, they reduce incentives for participating countries to make concessions at the multilateral level.

On the other hand, they increase the benefits from successful multilateral negotiations for initially uninvolved countries. In particular, emerging economies could be persuaded to make concessions.

Regarding the objection that the TTIP agreement would diminish the value of bilateral agreements with third countries, scholars suggest for countries already linked by agreement to either the EU or the U.S. have great incentives to form a deeper partnership with the other partner with whom they do not yet have an agreement.

This would allow a U.S.-EU trade deal to eventually serve as a platform for the inclusion of other regions with which both parties have negotiations or agreements. This is the heart of the “building-block” argument.

A deeper bilateral agreement between the U.S. and the EU poses no existential threat to the multilateral trading system. Instead, it helps this system to develop further in a more structured form.

A historic step in the making

The transatlantic economic order, in the rules-based system, is unique. In the last decades, it has boosted global economic growth for a variety of stakeholders, including China. This order has the potential to integrate the rising powers into this system, but strengthening the latter remains a prerequisite.

The TTIP is a timely political, economic and cultural partnership that – if negotiated well – should boost world economic development, strengthen the natural partnership of the West and create an international level playing field for fair competition.

It may also strengthen the bonds within European Union countries. It is a historic step in the making, which could tremendously benefit both sides of the Atlantic.