TTIP: great ambition or promises, promises ?

By Jacques Pelkmans

Jacques PELKMANS, Senior Research Fellow at the Centre for European Policy Studies (CEPS) and Professor at the College of Europe, reflects in this column on the meaning and future consequences of the Transatlantic Trade and Investment Partnership (TTIP). This topic is also discussed at a panel debate which the College of Europe Development Office is organising today in Brussels: an event for professionals and civil servants working on EU affairs. In working with Europe, the Development Office develops and manages the College of Europe’s Executive Education, tailor-made courses, e-learning, contract services, academic cooperation and research projects.

Although formally TTIP (Transatlantic Trade and Investment Partnership) is about concluding a free trade area (FTA) with the US – but a uniquely advanced and comprehensive one - , in fact the main idea is to conduct broad and intrusive ‘regulatory trade policy’. Regulatory trade policy has little to do with the WTO definition of a FTA. Indeed, it is conceivable that a bilateral or regional regulatory framework agreement can be concluded, without ever talking about tariff reduction. TTIP is all about reducing ‘regulatory barriers’ in food & feed regulation (also called SPS-type measures), in industrial goods (usually technical barriers to trade), in selected services  and in investment. It is also about agreeing to common disciplines and guidelines with respect to future regulation on both sides, with a view to prevent or limit regulatory divergences which can be very costly for transactions across the North Atlantic. The costs of such regulatory barriers can be quite high, dependent on the sector. For some dozen of industrial goods sectors (with cars and chemicals in the lead), the costs of regulatory barriers is higher – at times, much higher -  than tariffs. In feed & food it depends  but divergences in SPS measures and processed food tend to be among the most costly regulatory barriers, similar to cars and chemicals. In services, empirical estimates differ sharply. Only in investment, mutual market access is rather liberal : the stocks of foreign direct investment of EU companies in the US and US companies in the EU dwarf any other FDI stocks in the world. In a way, an investment partnership already exists, yet, the investment chapter is the subject of much (often emotional rather than well-informed) debate. The reason is ISDS,  which is not about market access at all, but about one aspect of investment protection,  via arbitrage as a form of dispute settlement between a suing company and the state.

So far, the TTIP debate has not been very concrete. A lot of heat has been generated by NGOs  and a few suspicious politicians, but most, if not all of this, is neither based on facts nor on the official EU mandate, nor on the declarations of the negotiators or their documents which have been placed on the internet. Assertions about lowering ’standards’ are made, although there are explicit written and oral commitments in public meetings that this is not what the negotiators (from both sides) are pursuing. Some other excitement has been created by the political leadership when TTIP was presented as a growth engine, at a moment in time when other sources of growth are hard to come by. The economic study (based on a CGE model of the GTAP variety) done by Prof. Joseph Francois and colleagues for the Impact Assessment by the Commission, arrives at around 0.5 %  additional GDP, which is welcome but certainly not impressive. There are reasons to believe that economic gains could be higher (e.g. due to productivity effects), however, there is little credible empirical evidence (based on simulation) suggesting that TTIP is a ‘growth engine’. If successful in reducing regulatory barriers over a broad range of markets, its long-run effects as a ‘living agreement’ – one of the aims of the proposed deal – might be higher still. Yet another amplifier is the possibility of positive spill-overs for third countries, in particular if the Asia-Pacific negotiations for an analogue agreement (TPP) would turn out to be quite similar.

It is good to realise that TTIP is a truly ambitious undertaking if one seeks to tackle regulatory barriers  in earnest. Because that must mean domestic reforms on both sides. One cannot work on a forceful reduction of regulatory divergence and at the same time maintain that there will no substantive repercussions for national regulatory regimes – even if this need not imply a lowering of ‘standards’. This is resisted in the EU, for good and bad and phony reasons, but also in the US, especially where federal independent regulators are prominent. Interestingly, this insight is surely present with the negotiators  because TTIP has been preceded by two decades or more of transatlantic regulatory cooperation  in many areas. It will require political leadership and a consensual involvement of both the EP and US Congress for TTIP to be successful, besides a consistent application of (what some governments find, are) daring regulatory principles such as equivalence and mutual recognition. Fascinating to follow and analyse,  far from easy to actually accomplish.