TTIP, a non-economic trade agreement

Peter Kerkers
Peter Kerkers has finished his bachelor Economie en Bedrijfseconomie and his Master Finance. Furthermore, he is the chairman of Asset | Economics 2018-2019.

In 2013, EU governments gave the European Commission a mandate to negotiate about TTIP, a Transatlantic Trade and Investment Partnership between the United States and the European Union. When starting, the two parties thought the negotiations would progress quickly. Now, three years later, the negotiation process seems to become long-lasting. Besides the European Commission, the European Parliament, business and trade unions, consumer-, health- and other public interest groups and the general public at least think they have something to say about TTIP. The negotiations turned out to be much more than just negotiations about economic terms. What are the different aspects of TTIP for our European Union?

‘’it is not simply a trade pact, but an agreement based on high EU norms’’

– Angela Merkel

Creating power

A widely used statement by politicians about TTIP is that it creates an alliance between democracies. A trade agreement would strengthen the ties between the EU and the US. In a time of social unrest in the world, with IS in the Middle East and Putin who is trying to increase his influence in eastern Europe, TTIP could be an uniting force counter-weighting these threats. Furthermore, looking from the European point of view, TTIP will be a step in the direction of more influence of Brussels in the world. Where the US is widely acknowledged as a political, economic and military superpower, the EU only managed to become an economic superpower. TTIP could be a step further in the process of bundling power with the US and get more influence and prestige in world politics. Bundling power with the US seems almost necessary in a time of growing interference of Russia in worldwide issues and the growing power of China.

Resistance of the public

During the TTIP negotiations, public support for TTIP in Germany has fallen from 55% in 2014 to only 17% nowadays. On the other side, also public support in the US has fallen from 53% two years ago to only 18% nowadays. An important reason for the growing resistance against this free trade agreement is the fear of losing jobs. When the US firms can produce products at lower costs than European firms, production will shift away from Europe to the US. Opposition to TTIP has been fiercest in Germany and Austria, which is reasonable because of the low rates of unemployment in these countries. Germans and Austrians feel they have lots to lose and only little to gain. Environmental issues are another major dispute in the TTIP debate. Without strong commitments to environmental protection, many people are afraid of the impacts of the agreement on climate change. Because on many fields the environmental regulations in the US are not as strict as in Europe, people are afraid that TTIP will result in more environmental polluting production. Besides environmental concerns, Europeans are also worried about consumer health. A commonly used example is the American chicken. In America, most of the chicken is chilled in antimicrobial baths, including chlorine, to keep bacteria in check. Such chlorine chickens could be a health threat for European consumers.

What about economic implications?

When the US and the EU succeed in their attempt to create a single trade market with the TTIP agreement, a single consumer market containing around 820 million people will arise. European firms can sell their products to more people without high trade barriers. Removing barriers makes it cheaper to export, what reduces the costs for transatlantic products for both US and European citizens. So consumers can benefit from a wide variety of products at lower prices. Removing barriers also gives rise to more specialization for firms. EU firms can focus on the production of products they can produce at relatively low costs and import other products from the US. In the end, European GDP is estimated to grow with around 0.5% extra if TTIP will become reality.

Looking to the economic benefits of TTIP, it seems reasonable to be in favour of TTIP. Specialization can result in shifting production of some products to the US, but for other products the effect will be the opposite. So if there will be people losing their job in one specific sector, there will be more jobs in other sectors according to economic theory. The fear for environmental damage depends on the regulations in the agreement. TTIP would consist of 3 parts:  market access, regulatory cooperation and rules. Negotiating good regulatory cooperation could prevent environmental damage due to the consequences of the agreement.

Overall, with the growing frictions in world politics it is an opportunity to strengthen the ties with the US to create a stronger position in the debates. I think that TTIP does not look too bad. It seems that people are more afraid of change in itself than for the TTIP agreement.

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