The great revenge of the North? TTIP and the rest of the world

Boat made of paper

Plans for a Transatlantic Trade and Investment Partnership (TTIP) between the European Union and the United States have sparked considerable debate. Among the main issues contested are the lowering of food-safety standards (hormone-treated beef, chlorine-washed chicken), the democratic deficit in the negotiation process, as well as the granting of far-reaching rights and legal privileges to international investors, undermining national law. However, Rainer Falk and Barbara Unmüßig consider a topic thus far left out of critical debate: TTIP’s implications for the “rest of the world,” particularly for developing and emerging economies.

TTIP is an initiative that aims to cement the dominance of the two largest economic powers in the world, the European Union and the United States, which still account for 50 percent of the global economic output and one third of all global trade. The competitiveness of developed countries is being put under pressure by the rapidly growing economic and political clout of large emerging countries, such as China, India, Turkey, Brazil and Russia. In this context, TTIP could be interpreted as a response to these countries’ rise in economic and political influence.

Loss of income

Regional trade agreements such as the TTIP typically generate gains, if any, only for those directly involved. As such, a recent study by the IFO Institute, a conservative economic think tank in Munich, concludes that bilateral agreements are inherently discriminatory to those excluded from the agreement. In other words, trade and investment benefits are denied to third-countries. Economists describe trade creation and trade diversion effects whereby countries excluded from the agreement may lose market access. Increasingly, studies on the impacts of the TTIP are showing that the expected welfare gains (more trade, more jobs) are not only exaggerated, but that they also come, to the extent realized, largely at the expense of countries not included in the agreement. The IFO study, for example, predicts that while Europe and the United States will see increased job creation, the rest of the world stands to lose 240,000 jobs.

Of course, the actual impact on third-countries will depend on how far-reaching the terms of the final ratified TTIP will be. As a rule: the deeper the economic integration, the more drastic and serious the diversion effects. Above all, the US and EU’s main trading partners will have to adapt to losses of income if a TTIP is finalized. In Latin America, this applies in particular to countries such as Mexico (textiles) and Chile (fruit). As far as EU trade relations are concerned, North and Sub-Saharan Africa could be negatively affected (they currently have preferential access to EU markets).

Conversely, if the standardization, or mutual recognition, of the social and environmental standards of the new transatlantic economic area results in a lowering of standards (which is to be feared), many developing and emerging countries could also benefit, at least on the surface. For them, certain standards in the EU and the United States are trade barriers. This represents one paradox of the TTIP, especially since many proponents of the project, particularly those on the “green” spectrum, are hoping to achieve higher environmental and social standards through the TTIP, or even see an opportunity for more sustainable development. However, the TTIP’s primary purpose is to bolster the eroding competitiveness of the EU and the US and pursue exclusively economic (export) interests. It appears, then, that those wishing to see an increase rather than a decrease of social, environmental and consumer policy standards must engage in building comprehensive and multilateral agreements that involve all trading partners - even if this is a hard road to travel.

Regulatory impositions

The TTIP is in exact opposition to this type of multilateralism, which is why even inveterate free trade proponents, such as former Director-General of the WTO Pascal Lamy, warn against the even larger incoherent patchwork already created in the wake of the large number of regional free trade agreements. It is indeed neither incidental nor accidental that negotiations are now taking place outside the WTO.

Those issues on which the developed countries were unable to make headway with the WTO – and were thwarted by opposition from developing countries – are now the focus of TTIP negotiations: the elimination of so-called non-tariff barriers, the adaptation and harmonization of norms and standards, and new laws on cross-border investments (e.g., concerning the enforceability of absurd claims for damages on the basis of “loss of future profits” or the prohibition of performance requirements imposed on foreign investors). Furthermore, TTIP addresses issues of competition, public procurement, the service sector and intellectual property.

Given that these issues have little to do with conventional trade politics, the liberalization of trade in goods (by and large accomplished already) is hardly in the foreground of the negotiations of TTIP or its counterpart, the Trans-Pacific Partnership Agreement (TPPA). It therefore cannot be stressed enough that TTIP and TPPA are not only regional projects but rather the large-scale attempt to establish a new global economic order, led by the United States and Europe. Moreover, judging from the investment agreements that the EU and the United States negotiate with China – separately yet aligned with one another – this new global economic order may involve a three-way partnership with China.

Some may argue that the numerous regional, bilateral and plurilateral agreements could eventually be “amalgamated” into a multilateral system. However, regardless of how realistic this is, TTIP (and TPPA, even if it involves some developing countries) appears to be one-sided, dominated by the North imposing quasi-multilateral rules through the back door. Even if some developing countries were to join the new global order afterwards, they could not be “rule setters” but would rather have to meekly toe the line.

Mounting tension

It is unlikely that the new Southern heavyweights and developing countries will take kindly to such presumptuousness from the North. Through their experience with the WTO, they are now more confident and capable of looking after their own interests. Strengthened, developing countries are again questioning the current regime for cross-border investment, as demonstrated by the new Quito coalition of Latin American states against damaging foreign investment rules. In that context, TTIP will most likely lead to mounting tension and confrontations in the global economic and trade system.

Itself confrontational is the oft-made assertion (such as in the TTIP study of the IFO Institute) that “a transatlantic free trade initiative provides new incentive to engage in multilateral reform efforts particularly for the emerging economies” – an oblique way of indicating that the TTIP is also intended as an instrument to exert political pressure. How little the emerging economies can count on the cooperation of the industrialized countries in economic matters can currently be observed through the United States’ return to a loose monetary policy.

As the new Fed chief Yellen has made unmistakably clear, US monetary policy is determined only by domestic economic interests.The same applies to trade policy. Here as well, the United States and the EU each follow the particular interests of dominant economic actors. Even the WTO negotiations never claimed or aspired to be a “development round,” and came to a dead end, because the US and the EU refused to end their agricultural subsidies. Ultimately, despite all their hot air about “free trade,” TTIP and TPP’s proponents not so much concerned with free trade, but rather with a “managed trading system” (Stiglitz) that serves their own interests – even, if necessary, at the expense of the rest of the world.


Notice: This article was first published on 2/15/14 in German on ZeitOnline