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Transatlantic Trade and Investment Partnership (TTIP)

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Topic: Transatlantic Trade and Investment Partnership (TTIP)

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Transatlantic Trade and Investment Partnership (TTIP)

The Transatlantic Trade and Investment Partnership (TTIP) is a large trade deal that is currently being negotiated between The United States and the European Union. The main objective of this agreement is to boost trade between the two partners.

The first round of talks between the EU and the US on TTIP started in June 2013. The removal of trade barriers is predicted to boost the buying and selling of goods and services, as well as stimulate investment in both economies, leading to economic growth and an increase in jobs. In order to achieve this, the agreement has three main elements: market access, improved regulatory coherence and cooperation, and improved cooperation when it comes to setting international standards. Some studies predict the agreement will bring tremendous economic gains to the EU and the US, other studies doubt this. What is certain though is that TTIP will also have an effect on the rest of the world. An important cause for concern is the impact TTIP will have on developing countries. The US and the EU should take these possible consequences into account and make sure the principle of Policy Coherence for Development is being applied.  

 Problem 1: Trade diversion

Trade diversion takes place when, due to the formation of a free trade agreement, trade is diverted from a more efficient exporter (in this case developing countries) towards a less efficient one (EU/US). Hence, lower import barriers for the EU/US replace imports from third countries, which will negatively affect trade from Africa, Asia and Latin America, as they will be locked out. This is a concern for Fair Politics, as it directly opposes the EU’s development commitments and therefore policy coherence for development.

Problem 2: Preference erosion

The EU and the US both have preferential trade agreements with developing countries, respectively the EPAs and AGOA. These agreements are meant to stimulate trade between those regions and the EU/US and thereby to boost sustainable growth and poverty reduction in developing countries. They resulted in preferential access for exported products from developing countries to the European and US market and vice versa. However, an important shortcoming of these agreements are the rules of origin required for product eligibility, as they are ill-adapted to global value chains. This makes it very difficult for developing countries to comply with the different EU/US rules of origin. It would, therefore, be very favourable to developing countries if the EU/US would mutually recognize the requirements covering rules of origin within TTIP. So far, however, this has not been on the agenda of the negotiations. In addition, there are major concerns that TTIP will lead to a loss of the preferential access for developing countries as the EU/US could take over this position when they have lower trade barriers between them. This ‘preference erosion’ would clearly have a negative impact on developing countries.

Problem 3: Higher regulatory standards

A widely debated issue with TTIP is the public concern that social and environmental standards will be lowered in the future, when EU/US standards are harmonized or mutually recognized. Developing countries would benefit from lower standards, as it increases their access to markets. However, the EU wants to keep the right to set high levels of environmental and labour protection and avoid a race to the bottom. Higher standards would mean a higher threshold for developing countries to get their products onto the EU and US markets. The issues of regulatory standards presents a clear paradox of TTIP: while lower regulatory standards would benefit developing countries in terms of compliance, this would not benefit EU/US citizens who fear a lowering of social and environmental standards. To address this paradox, the EU/US should assist developing countries in adapting to new (higher) regulatory standards.

A lot will depend on the actual design of TTIP, which remains unclear as the negotiations are still going on. Taking into account the interests of developing countries in the negotiation process in line with the principle of policy coherence for development would be a crucial first step to a fair, open and sustainable trading system.

For further information and references please click here for our background paper on TTIP.

Heading image. Made by: Holger Boening. Source: Mehr Demokratie, 2016.