Asia

After TPP: the EU shouldn’t rush into concluding TTIP

Despite the magnitude of the Transpacific Partnership Agreement concluded by the United States, the EU should not heed calls to rush into concluding ongoing Transatlantic Trade and Investment Partnership talks under the Obama administration at any cost, and focus instead on negotiating a good agreement. A point of view by Sébastien Jean.

 

The Transpacific Partnership Agreement announced on Monday 5 October is unprecedented in its scope because the twelve countries participating count 800 million inhabitants and produce about two fifths of world output. The conclusion of these negotiations is a political and diplomatic success for Barack Obama.

 

But the TPP announcement needs to be put in perspective. Many parties to TPP are already tied by free trade agreements, starting with NAFTA. This already reduces the scope of trade concessions. The United States have long argued that they are setting a “gold standard” for twenty-first century trade agreements, but the last months have seen a lot of political blockages on Japanese import tariffs on beef, on US tariffs on automobiles, or on Canadian dairy tariff rate quotas, to name but a few. None of these issues is new. The political dimension of TPP, which is to try to contain China’s commercial might, is not innovative either, nor is it exemplary.

 

Nonetheless, the deal could fundamentally alter the global trade policy landscape, for two reasons: its participants, and its rules. Despite all the talk about the decline of their power, the United States remain the world’s economic leader. Their signing of a deal of such magnitude that includes a partner as important as Japan, will unleash reactions by other US partners. China in particular will likely be incentivised to accelerate its ongoing trade negotiations in the Asia-Pacific. Past experience shows that nothing prompts countries more to conclude trade deals than the trade agreements concluded by their competitors.

 

The second reason is linked to TPP’s rules. Even if haggling over market access was at the centre of the last rounds of talks, the agreement should involve significant binding commitments in this respect. Judging on reports made so far – the text of the agreement has not been released, pointing to the issue of transparency – some rules follow the logic of ‘bargaining’, even in some cases of rent seeking. This is particularly so in the case of the period of data exclusivity for biomedical innovations, an issue US partners have resisted to in the face of relentless pressure from US pharmaceutical firms. There are also new disciplines on state owned enterprises and on public procurement, as well as on labour rights and the environment.

 

The willingness to make these commitments “fully enforceable” also is significant. An efficient dispute settlement mechanism, modelled after the World Trade Organization’s one (a country that does not respect its commitments could see its benefits under the TPP suspended – even if the issue is not directly about trade) also exists in many other bilateral agreements, but the TPP scale may confer it a different dimension. In the case of Vietnam, in addition, the agreement includes a “consistency plan”, according to which the country commits to a universal minimum wage and to freedom of association for labour unions,  accepting that the US could apply commercial retaliatory measures if it doesn’t comply.

 

The real scope of these rules will only be known once their details are published and time reveals how they work out in practice. Yet, it is already clear that such mega-regional agreements threaten the multilateral trading system. Positive consequences might ensue in terms of governance, but the risk of balkanisation of the system is significant.

 

No need to rush into finalising TTIP

 

What lessons should the EU draw from the conclusion of TPP? Vis-à-vis the EU, the US can now leverage the threat of greater competition for EU exporters to the TPP region. TPP also reduces the potential negative fallout for the US of the current TTIP negotiations. This gives Washington greater bargaining power in the talks.

 

Is this reason enough to accelerate ongoing talks and finalise them while the Obama administration is still in power, as some observers and policy-makers have called for? Doing so would be a mistake. The stakes in TTIP are too high for the deal to be rushed. What is more, the Obama administration will be busy with passing TPP through Congress and on presidential elections in 2016. Seeking to conclude TTIP under the Obama administration can only lead to a carelessly crafted deal, with few chances of being favourable to Europeans.

 

The impact of TPP on global value chains is difficult to foresee. But overall TPP concerns markets which are rather far away from the EU. The commercial concessions are overall limited and the transition periods for sensitive products quite long. What is more, TPP member’s commitments concerning regulatory issues apparently remain limited, bearing no comparison what the TTIP intends to reach. They will not likely have a major impact. What is more, the EU already has agreements in place or under ratification process with four TPP partners – Canada, Chile, Mexico, Peru, and Singapore – and agreements under negotiation with five others – the US, Japan, Malaysia, and Vietnam. Hence, there is no reason to panic.

 

In the face of the political shockwave sent by TPP, the EU might be better advised no to rush head on into finalising TTIP, but to take the time to examine the agreement’s implications for itself and for its trade policy strategy.

 

Sébastien Jean is Director of the research centre CEPII in Paris.


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