It’s the geopolitics, stupid: Why TTIP matters

It’s the geopolitics, stupid: Why TTIP matters

It’s the geopolitics, stupid: Why TTIP matters

Written by Rem Korteweg, 02 April 2015

A transatlantic free-trade agreement offers geopolitical benefits for the EU and the West. Supporters of a deal should make this point to claim back ground from the anti-TTIP camp.

Proponents of the transatlantic trade and investment partnership between the US and the EU, better known as TTIP, face an uphill struggle. Since negotiations started in 2013, the momentum has been with TTIP’s opponents. In Europe, they have mobilised support on social media, in parliaments and on the streets. Anti-TTIP protests shut down parts of Brussels in December. Nobody is demonstrating in favour of a deal.

TTIP’s advocates focus on the economic benefits: removing the remaining tariffs, aligning rules and standards, and reducing the paperwork required for doing transatlantic business should all lead to economic growth. But the full economic gains of TTIP are unlikely to be visible for several years after its implementation. In contrast, TTIP’s European opponents are exploiting protectionist, anti-American and eurosceptic sentiment. Critics such as trade unions and left-of-centre parties in Germany, France and Austria warn that TTIP is a secretive agreement that would force Europe to adopt inferior, American standards and would subordinate European democracies to US corporate interests. In response, the European Commission has decided to make many of its negotiating documents public. But that will not satisfy many opponents to a deal. Policy-makers and politicians must therefore focus their message on the undecided and those whose interests are not purely economic. While the economic benefits of TTIP are difficult to quantify, the geostrategic impact warrants closer attention in Europe.

A successful TTIP would bring Europe a number of strategic benefits. TTIP would allow the West to set global trade standards, strengthen Western diplomacy, improve European energy security and reaffirm transatlantic ties.

States use economic competition in pursuit of geopolitical objectives. After years of crises, low growth and political tension in the West, some countries in Asia, Latin America and Africa have become attracted to state-led economic models such as that of Beijing. China and other undemocratic emerging economies are therefore using their economic success as a springboard to political influence. Russia – though certainly not an economic success – has created the Eurasian Economic Union to look like a quasi-EU while promoting Russian political and economic interests in its neighbourhood. China is trying to set up alternatives to Western-dominated international financial institutions. The UK, France and Germany provoked American irritation when they announced that they would join the Asian Infrastructure Investment Bank as founding members. The US is concerned that the Chinese-led institution could be a means to circumvent the World Bank. The creation of a transatlantic trade bloc, however, would strengthen the Western economic model against the growing influence of undemocratic states.

Size matters, particularly in the geopolitics of trade. A new, seamless market based on a transatlantic tariff-free zone with a large degree of regulatory convergence would be a major attraction for others. If two economic giants agreed to align consumer safety, environmental, investment protection and other standards, their combined pull would bring others to copy these standards to gain market access. This would expand Western influence.

The EU and the US are negotiating TTIP mainly for the benefit of European and American citizens, consumers and companies, but the negotiators are surely aware of the deal’s potential impact on other trading partners. TTIP can become a new centre of gravity for global trade. Once an agreement has been reached, countries which already have far-reaching agreements with either the US or the EU should be offered access to TTIP. For some it would be relatively straightforward to ‘dock’ to the deal: Canada recently signed an EU trade agreement seen by many as a precursor to TTIP, and Norway is a member of the European Economic Area, and will have to accept TTIP’s standards. But for a country like Turkey it will be different. Turkey’s customs union with the EU does not include areas that are covered by TTIP, such as agriculture and public procurement: in these areas, US firms would have an advantage over Turkish firms in Europe. TTIP would therefore give Ankara a strong interest in deepening the customs union. The EU should talk to Turkey about TTIP, but Western concern over President Tayyip Erdogan’s creeping authoritarianism and his controversial foreign policies suggest the talks may be icy. The EU should use the additional diplomatic leverage TTIP would generate.

In spite of the attention it gets in Europe, Brussels and Washington are not pursuing TTIP in isolation. In Asia, the EU has bilateral free-trade talks with Japan, India and five south-east Asian countries underway, and it has concluded deals with South Korea and Singapore. The United States is negotiating a ‘mega-regional’ trade agreement, called the Trans Pacific Partnership (TPP), with eleven Pacific countries including Japan, Malaysia, Australia and Mexico. In a way, TPP is TTIP’s Pacific counterpart: it would also set regional standards and reduce non-tariff barriers. These twin trade talks involve more than a billion people in 40 countries producing 60 per cent of global GDP (based on 2013 World Bank figures). The WTO’s Doha round has been stalled, perhaps indefinitely, and the TPP-TTIP tandem could become the basis of a new-style multilateral trade accord, centred around Western leadership.

Despite their complementarity, TPP figures more prominently in Washington’s policy debate than TTIP: TPP is likely to conclude sooner, President Barack Obama has made it a central element in his Asia strategy, and some of TPP’s Congressional champions say that Asia is the future, while dismissing the eurozone’s glacial growth prospects. European diplomats in Washington should not enter both deals into a beauty contest, rather they should impress their combined strategic value upon the Americans.

TTIP would also set an example for other trade talks. The European Union and China are discussing an investment agreement, though the negotiations are slow-moving. Investment protection is one of the EU’s principal demands: it wants to see a Chinese economy that is more transparent, where the rule of law protects foreign intellectual property and investment. Herein lies the strategic value of a robust investor-state dispute settlement mechanism in TTIP – even if it is one of the main issues fuelling opposition in Europe. An EU-US deal with a strong clause on investor protection would make it more difficult for Beijing to push for an EU-China investment treaty without one.

Then there is TTIP’s energy dimension. The US fracking revolution has put the country on the cusp of exporting liquid natural gas (LNG). The EU thinks American LNG will help to diversify European energy imports and reduce reliance on Russian gas. A free-trade deal would allow EU gas companies to avoid the hassle of securing licences for LNG imports from the US government. This should be a compelling reason in favour of TTIP for those countries concerned about their dependence on Russia. Although some European leaders will have to do a better job at explaining one irony: why they are happy to import US shale gas, but unwilling to drill for it at home.

American oil also features in transatlantic energy discussions. Innovations like those that have spurred shale gas production have turned the US into the world’s largest producer of oil and refined petroleum products. But the US has banned crude oil exports since the 1973 oil crisis. While the European Commission would like TTIP to cover oil, Congress is hesitant to loosen its grip on this national treasure. Trade in crude oil would be a major boon for Europe, and EU negotiators should demand it: it would help European refiners and the petrochemical industry, improve European energy security and increase market pressure on other major oil exporters, particularly Russia. In the United States, a growing chorus is pointing to the benefits for US foreign policy of lifting the oil export ban.

A deal on TTIP would help to keep the US committed to Europe. NATO remains the bedrock of the transatlantic security partnership, but America’s strategic gaze is increasingly drawn towards the Far East. Most European defence budgets continue to decline. This makes US politicians more and more reluctant to invest in the NATO alliance. TTIP could be a ‘second anchor’ for US commitment to Europe. A deal would not be a substitute for NATO, but TTIP could offer Americans a persuasive economic rationale for continuing to support a strong transatlantic bond. Mike Froman, the US Trade Representative who negotiates TTIP, said in 2013 that a deal “would complement one of the greatest alliances of all time with an equally compelling economic relationship.”

But trade negotiations are hard and could drag on, or even fail. German Chancellor Angela Merkel and European Commission President Jean-Claude Juncker said on March 4th that a deal should be reached in 2015. The US negotiator said a deal should be done on ‘one tank of gas’, meaning within President Obama’s term in office. This may not be realistic. A delay is one thing, but if the two sides fail to reach a meaningful agreement, there would be a number of negative consequences.

Besides the West’s unity, the EU’s credibility as a global actor is at stake. Brussels sees itself as an economic power, not a military power. If anything, the size and depth of the European single market is a magnet of attraction for other countries; that gives the EU global influence. Investing in TTIP’s success but then failing to deliver it would be a blow to the EU’s geopolitical standing.

Should the negotiations collapse, mutual recrimination would lead to a deeper transatlantic divide. If TTIP broke down and TPP succeeded, it would cement America’s pivot to Asia and raise further doubts about Europe’s importance to the US. Moscow would see a collapse of the talks as a new opportunity to exploit, energising its anti-Western rhetoric. Beijing would still have concerns about TPP, but it would be relieved that Brussels and Washington could not impose their trade standards in unison. And finally, a failed TTIP would do nothing for the EU’s reputation in the UK and other free-trading member states. For Britain, in particular, this would be dangerous if the failure coincided with a referendum campaign on EU membership. Pro-EU Tories rely on Europe’s ability to negotiate important free-trade agreements as an argument for staying in.

Rem Korteweg is a senior research fellow at the Centre for European Reform.

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