The Transatlantic Trade and Investment Partnership (TTIP): Short term gain for long term pain?

From the very beginning, facilitating trade has been a key aim of the European Union (EU) and its predecessors. One of the current trade projects being negotiated is the Transatlantic Trade and Investment Partnership, which enters the second stage of negotiation this week (11^th-15^th November 2013). TTIP, as it is known, is a wide-ranging free trade pact between the United States of America (US) and the EU. If the negotiations are successful and the treaty is ratified, TTIP would be one of the world’s largest trade agreements, rivalling the North American Free Trade Agreement (NAFTA). The pact would remove barriers, cut tariffs, and unify regulations between the EU and the US; or, to put it simply, it would further liberalize trade between two of the world’s biggest economies.

In September 2013, Michael Froman, the lead US negotiator for TTIP, presented a short speech to the German Marshall Fund in Brussels on the benefits of TTIP. He told individuals from governments, businesses, and NGOs, including myself, that TTIP would lead to financial benefits for all by creating growth, increasing the number of jobs in both regions, and cutting bureaucracy though harmonising the “comparable levels of protection” currently in place in both economies. The European Commission Economic Analysis has claimed that TTIP would generate annually an extra €120 billion or an average of €545 extra disposable income for a family of four in Europe.

Could TTIP really be such an easy windfall for both EU and US economies, though? Is there no possible downside to this deal, or, more generally, to the endless free trade and globalisation clearly outlined in Mr Froman’s speech?

There have been recent doubts about TTIP. Revelations about the depth of US’s NSA spying programme and the tapping of European leaders’ phones have resulted in calls for the TTIP negotiations to be delayed or scrapped. There has also been widespread condemnation of the inclusion of an investor-state dispute settlement mechanism, which appears to provide corporations with an instrument to make vast sums from government when they do not find specific regulation convenient. However, beyond these recent disclosures, the long-term ramifications of a treaty such as TTIP should be questioned.

Are the EU and US trade regulations really compatible?

TTIP threatens to reduce current EU regulatory standards in many important fields. In doing so, TTIP could significantly reduce living standards for millions of European citizens if specific standards are not clearly outlined in the final deal. The EU and US approaches to regulatory standards are fundamentally different. While the US insists that products are barred from the market only if proven to be harmful to the public (“science-based approach”), the EU maintains that producers must first establish that their products do not have a detrimental effect on citizens (“precautionary principle”). This difference in positions has given Europe much stronger governmental regulation.

Both negotiating parties have declared that there will be no negative impact on current standards in the EU or the US. However, this seems impossible: a difference in regulation would tip the economic balance between the parties, creating an inequality where one market is not competitive in terms of costs. It seems unlikely that the US will change its ‘scientific approach’, as raising standards would both have significant economic costs and go against their liberal policies. There has been no indication that they plan to adopt the EU’s precautionary approach and as the negotiations are currently confidential there is very little way of knowing. Therefore the higher EU standards risk being eroded in response to this new market place.

Impact on the environment

One area in which standards may be eroded is the environment. The US has weaker legislation than the EU regarding greenhouse gas (GHG) emissions. By attempting to standardise regulations with the US, the EU could potentially reverse or slow down its own GHG reduction policy.

Lowering environmental standards is the only logical development in this scenario. The US has recently massively expanded its production of tar sands oil by refining the huge volumes of crude oil being extracted in Canada. The US (a nation with a strong anti-regulation tradition) is unlikely to want to increase legislation in a market that is widely seen as both a solution to its energy needs and a valuable export. Europe, in contrast, has no tar sands refinement or drilling, and the EU Commission is currently in the advanced stages of labelling tar sand oil as a producer of more pollution than more conventional fuels. One of the European Commission’s key aims by 2020 is to reduce GHG emissions by 20% compared to 1990 levels. The proposed EU Fuel Quality Directive would recommend that suppliers minimise the use of tar sand crude oil as it has high bitumen content with 12 to 40% higher lifecycle emissions. A company would have the freedom to choose the mix of products they buy, but this directive would be there to help Member States lower emissions in line with the EU’s 2020 target and the 2050 target of a 50% reduction in GHG emissions compared to 1990 levels. It has already been reported that during the first round of negotiations, Mr. Froman put pressure on the EU to reduce the standards of the Fuel Quality Directive, but, as the negotiations are secret, these reports are unconfirmed.  

Impact on labour

Another example is the treatment of workers and labour laws.  EU labour regulations provide European workers, as compared to American workers, with higher standards of protection against exploitative and dangerous working practices. This is illustrated clearly in the much broader adoption of the International Labour Organisation (ILO) conventions by EU Member States and EU institutions. If the TTIP treaty is ratified without any defined labour standards, the EU runs the risk of having to lower its labour standards in order to remain competitive in terms of price. Many trade unions and NGOs, including the European Trade Union Confederation, have also raised concerns about the negative impact TTIP could have on health and safety in the work place, collective bargaining, as well as settlement dispute mechanisms.   

Impact on food and agriculture

Standards regarding food and agricultural could also be affected. Genetically Modified Organisms (GMOs) are a good case in point. Currently, there is strong opposition to the widespread use of GMOs in the EU, and all GMOs must be clearly labelled. However, GMOs make up a significant quantity of crops grown in US, where is there is little public opposition. In 2010, 93% of all soybeans and 86% of all maize crops in the US were classed as genetically modified (GM) crops. According to a report in 2011 (for an EU Commission project), the US had 64 million acres (25.8 million hectares) of GM crops compared to 107,719 acres (43,592 hectares) split between 7 EU Member States.  There is a real fear that European GMO standards will be diluted as producers attempt to stay competitive in a market exposed to cheaper US GM products.

The use of hormones in cattle feed is another example of the same issue. Use of hormones in cattle feed is banned in the EU, whilst, in the US, they are widely used. Without clear definitions within the treaty of what is not permissible, meat from US cattle (raised with hormones) could be exported to Europe, supplying potential dangerous food to European consumers and forcing EU cattle farmers to adopt US practices to remain competitive on price. International and regional environmental groups such as Friends of the Earth, the European Consumer Group, and the Eurogroup for Animals, have raised concerns about the lowering of standards as well as the secrecy of the negotiations.  

Conclusion

Transatlantic trade is an important part of the EU economy. A wide range of existing initiatives and deals at both EU and Member State levels are currently facilitating over €2 billion of trade per day in goods and services. The idea behind TTIP is to increase this interaction, to help increase economic growth and employment opportunities, and thereby improving the lives of millions of citizens on both sides of the Atlantic. However, liberalizing trade and trying to unify two very different regulatory systems could result in the destruction of standards which protect such citizens, particularly in Europe.

Doubts have also been raised about the viability of the promised financial benefits, with some suggesting that, rather than creating jobs, deals such as TTIP can actually lead to an overall rise in unemployment, and job losses, especially in particularly vulnerable areas, such as manufacturing. The outcome could be a reduction in regulation protecting citizens, in exchange for very few gains in terms of employment and incomes. Diluting strong regulations in exchange for growth also sets a poor example to other nations. The EU is a leader in strong environmental, worker welfare, and food safety legislation. Would the EU really be able to influence other nations to create better policy in these fields, if it reduces its own standards? Perhaps EU citizens should ask questions about the long term impact of trade liberalization deals such as TTIP, and ask whether the short-term gain of potential jobs and potential growth are really outweighed by the long-term costs of weaker legislation.

Tags: Brussels, eu, EU Climate and Energy Policy, European Commission, european union, Free trade, Michael Froman, regulation, Trade liberalization, TTIP, United States, USTR