TTIP: Offering Benefits beyond Big Business

News Øresund – Johan Wessman

Cecilia Malmström, European Commissioner for Trade

Government Gazette, Mar 2, 2015
by Kara Sutton

The February-March issue of the Government Gazette features a balanced and evidence-based overview of the Transatlantic Trade and Investment Partnership (TTIP) negotiations, with opinion and analysis from both sides of the debate. Here, Kara Sutton from Bertelsmann Foundation argues that TTIP holds huge economic potential for SMEs in Europe and the USA and presents a step towards greater regulatory cooperation between the two trading blocs.

The current conversation about the Transatlantic Trade and Investment Partnership (TTIP) is subject to much fear mongering. Groups opposed to a deal, by complaining of a lack of transparency in the negotiations, are promoting myths that TTIP will force Europeans to eat engineered “Frankenfoods” or “Chlorhuhn” (chlorine-washed chicken) and allow American companies to take over European healthcare systems. The public debate, awash with such unsubstantiated claims, has become bogged down in some of the minor, even non-existent, elements of a potential deal. Lost in the hysteria, however, is the main reason for initiating TTIP negotiations: the potential economic gains.

The rhetoric surrounding TTIP’s launch in 2013 was highly optimistic. It is no surprise that topics such as genetically modified organisms (GMOs) and geographic indications (GIs) are plaguing negotiations. These issues have, after all, been for decades sticking points in the trans-Atlantic relationship. Political leaders and other proponents of TTIP need to reset the narrative by focusing again on the big picture. Part of TTIP’s needed “fresh start” in 2015 requires getting back to the basics of why the US and Europe need TTIP.

More Growth, Same Spending

The major economic rationale behind TTIP is lacklustre growth in the aftermath of the Great Recession. While the US economy has picked up, the EU continues to lag. EU unemployment averaged 11.4 percent in 2014, and concerns about deflation and a weakening investment climate loom over the European economy. Retaliatory sanctions from Russia and the outcome of Greece’s recent election only add to the stormy scenario. To scatter the clouds, the EU needs new sources of growth and investment. TTIP represents an opportunity to help spur European growth without increasing public spending or implementing politically difficult structural reforms.

The trans-Atlantic relationship is already huge: US$1 trillion in two-way annual trade and US$4 trillion in investment maintain 13 million jobs. The implementation of an ambitious TTIP would solidify the trans-Atlantic link further by increasing GDP growth by an estimated 0.5% for the EU and 0.4 percent for the US (in absolute terms that translates to €119 billion and €95 billion, respectively). Given the euro area’s unexceptional 0.8 percent growth rate in 2014 after two years of economic contraction, an additional 0.5 percent represents a healthy boost. In addition, since US and European economies and their supply chains are already highly integrated, TTIP’s lifting of existing trade barriers would increase trade and investment flows while underpinning hundreds of thousands of more jobs.

Benefits Beyond Big Business

Critics argue TTIP is only for large corporations, but the benefits would actually extend to small- and medium-sized enterprises (SMEs). Lowering tariffs and eliminating regulatory barriers would reduce the cost of doing business across the Atlantic for companies large and small. It would also support new jobs and provide consumers with access to cheaper and higher-quality products.

The average tariff in the trans-Atlantic marketplace is between 3% and 4% That may seem low, but it’s enough to prevent some SMEs from expanding overseas. Lower tariffs, or a customs de minimis provision that would allow SMEs to export duty free, would be highly beneficial for such businesses, which comprise approximately 90% of the US and EU economies.

SMEs also face challenging regulatory barriers that larger corporations can easily overcome with their vast resources and legal teams. Regulatory cooperation via TTIP would help reduce the red tape that SMEs face, such as extra product testing or customs requirements, and allow for quicker export processes, reduced costs and lower prices. And that, in turn, could boost demand and create jobs.

TTIP could also raise wages. Increased US exports over the last four years have supported 1.6 million jobs that on average pay 13% to 18% more than non-export-related jobs. A Bertelsmann Foundation-sponsored study found that lower trade costs and job growth due to an ambitious TTIP fully implemented by 2027 would increase the annual income of the average American household by US$865. The equivalent figure for a European household is US$720.

Much of the buzz around TTIP is the prospect for increasing exports, but imports also provide economic benefits. 30% of trans-Atlantic imports are inputs for American- and European-made products. Lower barriers to trade, therefore, would translate into lower production costs, which can lead to higher wages and job creation.

Setting Standards

TTIP carries an addition advantage: It would address standards in business sectors and areas where the US and EU already see eye to eye. These include e-commerce, intellectual property, state-owned enterprises and rule of law. The digital marketplace, for example, is increasingly becoming the primary platform for international trade although it is only minimally guided by international policy. By creating a protocol for cooperation between American and European regulatory bodies, TTIP can help them anticipate potential hiccups in trans-Atlantic trade and promote better regulation.

The US and EU should seize the opportunity afforded by TTIP to agree to rules governing emerging trade issues, which can then be advanced in multilateral forums such as the World Trade Organization (WTO). The trans-Atlantic partners comprise forty percent of global GDP and one-third of international trade. If TTIP becomes the vehicle to establish common standards, including high environmental and labor regulation, for nearly half of the world economy, such provisions could be the basis for future trade agreements and could secure for the US and EU a level playing field in a rapidly evolving global economy.

Nothing Ventured, Nothing Gained

Much of the current fear mongering exists because TTIP is not a traditional free-trade agreement. A deal would likely go beyond tariff elimination to set standards, an area that can evoke passionate feelings in the public. But fear is also being spread by an allegedly opaque negotiating process that requires, in fact, some level of confidentiality to achieve an ambitious outcome. This has led to a dissemination of misinformation.

TTIP negotiators do not aim to weaken strong standards or government protections on either side of the Atlantic. They are, rather, endeavoring to ensure higher-quality trans-Atlantic standards. An accord would not be a giveaway to multinational corporations. It is a unique opportunity to provide SMEs with an advantage in the trans-Atlantic marketplace while supporting new jobs and higher wages. TTIP also represents a chance to create a sturdier trans-Atlantic alliance that would position the American and European economies for global competition.

Reaching an agreement will not be easy. TTIP requires compromises and trade-offs, and, in some areas, these will not always be possible. But the potential economic prospects―the basic premise that has buttressed TTIP from its inception―make the pursuit worthwhile.

Kara Sutton is project manager for legislative relations at the Washington D.C. based Bertelsmann Foundation.