Tafta/TTIP and TPP in comparison: similar interests, unkown outcomes

 Abstract: 2013 is a critical year for global trade policy. The ongoing trend of proliferating bilateral and multilateral trade agreements has entered into a new stage with Japan’s decision to join the Trans-Pacific Partnership (TPP) negotiations and the launch of negotiations between the EU and the US to reach a comprehensive trade and investment agreement (TAFTA | TTIP). On top of that, the EU and Japan also started negotiating a bilateral trade agreement in April 2013. Due to their sheer size, these trade blocs have the potential for significant economic and geopolitical implications. However, the negotiations have been surrounded by a lack of transparency, making it difficult to access their effects. In order to understand the issues that are currently under negotiation, this paper aims at providing a comparative perspective on the TAFTA | TTIP and the TPP as well as the EU-Japan agreement. Such a comparative perspective will help to pinpoint recurring patterns and interests in the trade policy of the current three leading trade powers. By carving out similarities and overlapping developments between these negotiations, the paper ventures to identify the direction that global trade policy is heading to.

Since US President Barack Obama announced that the US would start negotiations with the EU to reach a comprehensive Transatlantic Trade and Investment Partnership (TTIP), also known as Transatlantic Free Trade Area (TAFTA), in his State of the Union address in February 2013, the TAFTA | TTIP is the talk of the town for anyone concerned with global trade policy. Covering around 30% of global trade, the TAFTA | TTIP would become the world’s largest free trade area. In addition to lowering common trade barriers such as tariffs, the TAFTA | TTIP also aims at establishing new rules, standards and procedures in manifold areas that have not been covered by former multilateral trade liberalization rounds of the WTO. It is truly an unprecedented mammoth task that deserves the full attention of politicians, scientists, journalists, and last but not least, the general public.

However, the TAFTA | TTIP is not the only bilateral trade agreement with global dimensions that is currently under way. The negotiations on the Trans-Pacific Partnership (TPP), which started already in 2006, reached a new milestone when Japan, after a long time of hesitation, decided to join the ongoing talks earlier this year and already took part in the 18th round held in Malaysia in late July (VerWey 2013). The TPP has been dubbed the first 21st Century trade agreement due to its ambitious trade liberalization agenda and is seen as the centerpiece of the US trade strategy (Barfield 2011). However, only now with Japan onboard does the TPP have the potential to become the new standard for bilateral and plurilateral trade agreements around the globe. Both, the TAFTA | TTIP and the TPP, are at the forefront of global trade policy and are likely to determine the future of global trading patterns and rules not only for the participating countries, but also for the rest of the world as will be demonstrated throughout this paper.

The article’s argumentation is based on the belief that in order to understand a single agreement – whether the TPP or the TAFTA | TTIP – it is indispensable to analyze and compare both agreements. Countries are usually engaged in several negotiations at the same time and progress in one negotiation might have important ramifications for other trade talks as well. Preferential treatment and concessions given to one negotiation partner have to be extended to others. This can easily result in what economists call ‘a race to the bottom’, where mutual peer pressure leads to a situation where everybody is worse off afterwards. Weaker environmental laws and deteriorating labor rights are probably the most typical examples of such a downward spiral. Matthew Rimmer (2013) comes to the following conclusion regarding the concurrence of TPP and TAFTA | TTIP: “Both treaties will be mutually reinforcing. The United States Trade Representative will use the twin treaties to play participants and regions off against one another, and push for higher standards and obligations”. This statement clearly shows the need to consider both agreements in a comparative perspective to pinpoint similar patterns and interests as well as differences in the trade policies of the US, the EU and Japan.

TPP and TAFTA | TTIP – Twin Agreements with Similar Outlines

The governments of the US and Japan as well as the European Commission have been promoting bilateral and plurilateral trade agreements for a mix of political, strategic and economic reasons and motives. Clyde Prestowitz (2013), a former adviser to the Reagan and Clinton administration, argues that this is also the case with the TPP and the TAFTA | TTIP: “As with most trade deals, both the TPP and TAFTA have geopolitical as well as economic significance”. However, the similarities between the TPP and the TAFTA | TTIP are particularly high when looking at the economic dimension of the agreements. Like most other trade agreements, they both aim at abolishing common tariffs to increase the trade volume between the partner countries. But they also aim at reducing so-called non-tariff barriers (NTB) to trade such as technical barriers, sanitary measures, or in general, red tape. And even though many industries around the globe, for example the Japanese agricultural sector, are still highly protected by traditional import tariffs, NTBs are seen by many trade experts as the real obstacle to freer global trade (WTO 2012). Harmonization and mutual recognition of standards, procedures and regulations across industries have been identified as the most promising method to further facilitate trade relations (WTO 2012, 150). Therefore, it is no surprise that the further reduction of NTBs is currently at the core of these major negotiations (Sunesen et al. 2010).

Another outstanding similarity between these trade talks is their lack of transparency and the secrecy that has surrounded each round of negotiations so far. News coverage on the ongoing TPP negotiations has been particularly limited. Unfortunately journalists and scientists have been very slow to pick up the obvious overlap that exists between both agreements and investigate this matter more deeply. The TAFTA | TTIP itself however has drawn some more attention as a result of the National Security Agency (NSA) surveillance scandal and the resulting fear that an agreement dominated by US business interests would further increase the grip of the US government on the internet. The fact that the EU started negotiations with Japan a few months earlier on the other hand went mostly unnoticed (Pourzitakis 2013). This underlines the challenge for ordinary citizens to stay informed about these ongoing negotiations.

But as mentioned earlier, trade agreements are also driven by political interests and it would be misleading to explain such major trade projects mainly from an economic perspective. Geopolitical and strategic motives usually constitute a crucial impetus as well. The TPP for example is the most important trade policy project of the current US administration and at the same time the cornerstone of Obama’s pivot towards Asia, making it therefore highly political and symbolic. In a similar manner, Japan has expressed its desire to forge closer political relations with its Asian neighbors and the TPP is seen as a perfect platform to achieve this goal (Stein & Vassilev 2013).

“Demonstration against TPP” Photo credit: Caelie_Frampton – Flickr

However, these kinds of free trade agreements are not only about building or improving ties between negotiation partners. By nature, all bilateral and plurilateral agreements are discriminatory towards non-signatories. The important thing to note here is that their discriminatory economic effects are often accompanied by political discrimination. What does this mean with regard to the TPP and the TAFTA | TTIP? The political and strategic motives behind each trade agreement are intertwined with the national interests of each state, as well as its broader foreign policy strategy, and naturally, these national interests are more diverse than sole economic benefits. The administration of George W. Bush (2001 – 2009), for example, rewarded political allies in their ‘war against terror’ by quickly signing bilateral free trade agreements with them. Japan’s agreements so far also seem to be more symbolic than result-oriented, as most of them were concluded with smaller economies (Katsumata 2010).

There is, however, one noticeable aspect in both the TPP and the TAFTA | TTIP that might indicate a significant shared geopolitical goal of the US and EU. China, despite being the second largest economy of the world and the biggest trade partner of Japan and the second biggest trade partner of the EU as well as the US, is not included in the two most influential global trade talks. So what are the reasons behind China’s exclusion? Is this a deliberate move of the old trading powers to protect their challenged position at the top? Or is this just the normal procedure in which a group of advanced and open economies that share a similar understanding of the workings of trade policy get together and try to push for further liberalization? Against the background of the WTO’s dysfunctional Doha Round and low economic growth rates, this seems like a convincing argument, particularly when considering that China only joined the WTO in 2001 and discussions about its treatment of state-owned enterprises among other trade issues continue to complicate matters (The Economist 2012). Politicians and trade bureaucrats in the West on the other hand are looking for quick progress in the ongoing negotiations and, because Japan’s participation in the TPP will likely slow down further talks from now, are not too keen to invite another ‘difficult’ negotiation partner (Muscat 2013).

However, it could also be argued that the TPP and TAFTA | TTIP negotiations provide the EU and the US with a limited window of opportunity in which they can advance and establish their positions in trade policy as global standards before China becomes the dominating actor in global trade. Both the EU and the US want to set up certain industry, labor and environmental standards, hoping that other countries will follow those in order to stay competitive in the global market. This first-mover advantage of the US and the EU would force China to comply with their rules. Because even though China is rapidly catching up to the US, the EU and Japan in terms of ‘hard’ economic indicators, such as GDP growth and trade volume, its capability as a rule setter in global trade is still lagging behind. And against this background “America is trying to design a trade regime which China will eventually have to join – rather than getting to set its own rules as its clout increases” (The Economist 2013).

Conclusion

The landscape of global trade policy is changing rapidly. With the TPP and the TAFTA | TTIP there are two trade projects under way that are unprecedented in their ambitious and comprehensive trade liberalization agenda. This paper showed that TPP and TAFTA | TTIP, as well as the agreement between the EU and Japan, share similar economic goals, but tellingly their most significant similarity is their choice of negotiation partners, which is clearly politically motivated: deliberately or not, they exclude the world’s second largest economy, China, from their trade strategy. But China is not only absent from the current negotiations: many of the provisions and rules that are part of the tentative agreements will make it very difficult, if not impossible, for China to join in the near future. The next negotiation rounds will show if this strategy will be successful in counterbalancing China’s growing influence in trade policy or even pressure China to adopt certain rules and provisions promoted by the US and the EU.

However, these agreements actually all share one bad habit, which they even have in common with China’s agreements: their being negotiated mainly in secrecy.

References

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