Transatlantic Trade and Investment Partnership: is it an opportunity or a threat for the EU?

March 2, 2016


The EU-28 is among the top trading partners with the US, rivaling and overcoming China, Mexico and Canada, despite this condition represents a slight anomaly in the gravity model of world trade, according to which the total trade between two countries is directly proportional to their GDP, but inversely proportional to the distance separating them. In 2014, the EU-28 was indeed the second largest importer and the second larger exporter, accounting for a total value of trade of 507,620M€. In the last years, both the total volume of trade and the net balance increased in a positive trend. [Source IMF]

Nevertheless, since 2013 the EU and the US have been negotiating over the terms of the Transatlantic Trade and Investment Partnership. The latest round of negotiations was in October 2015, but an agreement is far to be reached. For this treaty to be signed all the members of the European Council must vote in its favor, but it still contains numerous and important features that may harm European economy and society at large.

The aim of the treaty is the creation of a free-trade agreement between the EU member states and the US. After years of recession, such agreement would boost both economies. The Centre for Economic Policy Research in 2013 forecasted that “an ambitious and comprehensive trans-Atlantic trade and investment partnership could bring significant economic gains as a whole for the EU (€119 billion a year) and the US (€95 billion a year) once the agreement is fully implemented. […] The benefits for the EU and the US would not be at the expense of the rest of the world. On the contrary, liberalising trade between the EU and the US would have a positive impact on worldwide trade and income, increasing GDP in the rest of the world by almost €100 billion. […] EU exports to the US would go up by 28%, equivalent to an additional €187 billion worth of exports of EU goods and services. EU and US trade with the rest of the world would also increase by over €33 billion”.

In addition, according to the orthodox theory of economic integration, which studies the effects of progressive removal of trade restrictions on goods, the withdrawal of tariffs and quotas would lower the price of said goods, which would benefit customers and press for a more efficient allocation of resources. Yet the aforementioned theory is based on a set of assumptions, such as perfect competition, absence of economies of scale and the small country hypothesis, which assumes that any change in the quantity of the good produced and demanded in the country will not affect the equilibrium price. Furthermore, the theory disregards significant issues such as technological progress, economic growth and income distribution.

The TTIP would foster further investments in both the EU and the US:  “it is estimated that a third of the trade across the Atlantic actually consists of intra-company transfers”. [Source] Such investments would help to produce jobs on both sides of the ocean.

However, the harshest controversies concern the common standards on goods and services and the new investor-state dispute settlement.

 Some might argue that setting common standards would be beneficial, as it would push for an increase of standards around the world and that US standards are high, compared to those of other countries. Such ideas are generally received with skepticism: many believe that the TTIP would remove regulations that hinder big multinational companies even if it would jeopardize the health of the citizens. In fact, US economy is far less regulated then the EU economy for what concerns food safety, chemicals, cosmetics and other goods. There are concerns regarding environmental issues too:” an estimated 11m extra tonnes of carbon dioxide will be produced if TTIP happens, and our reliance on fossil fuels will increase if it becomes easier for the US to export shale gas”. [Source The Guardian] Moreover, the lack of transparency during the negotiations allows speculations and fears to bloom: public services such as water, health and education could end up competing with private entities or be privatized. This is a rather ominous and unlikely scenario, but it has not yet been formally written off from the agreement, as far as it is known by the public.

 Finally, the last cause of disagreement is the new investor-state dispute settlement, or ISDI. It is a tool of public law that allows a company to pursue dispute settlement proceedings against a foreign government. Said instrument entitles the investors to claim compensation both on lost profit and expected lost profit in the future. The implementation of this feature would cause an intolerable infringement of the sovereignty of member States of the EU, because it would enable companies to influence public policies and actively obstruct the democratic process of the countries. The results of these proceedings are sadly notorious, the infamous case of Philip Morris, one of the largest tobacco companies in the world. The company disputed the regulations regarding anti-smoking campaigns in several countries, such as Uruguay, Norway and Australia and in some cases prevented the government from enacting its laws.

In conclusion, economic growth and free trade are righteous and just goals, but this perspective should not blind us to the implications that a poorly negotiated agreement may cause. Let us not forget that the founding treaties of the European Community had the aim to implement a free-trade area, that is true and undisputable, but on the other hand, our Community was also based on the ideas of welfare, social responsibility and respect for national identities and sovereignty. Agreeing to the TTIP in its current state would be a shameful defeat for the progress we made so far to achieve some degree of unification and solidarity, for it would surrender our laboriously achieved rights for the fantasy of profit.   



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