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The opposing forces of TTIP

Patrick Messerlin | 22 September 2014

The bilateral setting of the TTIP makes its outcome subject to two specific opposing forces.

‘Jobs’ are at the top of the Transatlantic Trade and Investment Partnership (TTIP) agenda, just as they are in the WTO or in any other bilateral trade negotiations involving the US or the EU. However, its bilateral setting makes the TTIP outcome subject to two specific opposing forces.
 
First, a bilateral setting may narrow opportunities of trade-offs in market access because the two partners may have a hard time balancing market access on a bilateral basis –without extra concessions from the rest of the world. For instance, in the Canada-EU negotiations, the Canadian request for opening the EU beef market and the EU request for opening the Canadian cheese market could not be ‘massaged’ by increasing the market access of Canadian beef and EU cheese to third markets. The outcome is to agree on deals ‘constrained’ by some perverse instruments –for instance, by capping market access through tariff-quotas (tariffs are eliminated or reduced only for a given quantity). Far from generating pro-growth competition, such instruments create rents grabbed by vested interest – including labour – which then fight any future liberalization threatening their rents.
 
Second, bilateral agreements open the possibility to address regulatory issues – the most important ones in today’s international trade – in a deep way if the two countries trust enough each other. That could be definitively applicable to the TTIP case if, when negotiating on regulations (such as norms for products or regulations shaping services markets), the EU and the US adopt the innovative approach of ‘mutual equivalence’. Mutual equivalence means that, after appropriate evaluation of the regulations at stake, each partner considers the partner’s regulations as ‘different but equivalent’ –hence does not impose any constraint on importing goods or services produced under the partner’s regulations.
 
The first force introduces distortions in the goods and services markets – such as in the labour market by shifting labour to sectors with the lowest pressures of competition (highest rents). By contrast, the second force unleashes competitive forces in goods and services markets – for example inducing the allocation of labour to its best uses, if the labour markets are not too rigid. It is very important to note that mutual equivalence leaves each member of the agreement in the driving seat, i.e. it is up to the country to improve its own regulations – for the good of its consumers and of its labour force.
 
Finally, the fact that the US and the EU are both mature developed economies and democracies may reduce fears of ‘social dumping’ –competition via low and repressed wages. However, the TTIP bilateral setting makes it very sensitive to prejudices on both sides of the Atlantic. The High Level Working Group report on TTIP evokes possible commitments for a ‘high level of protection for the environment and workers’. This is a strange basket of highly inflammable topics. The status of trade-unions, the ways to deal with strikes, the existence of a ‘biting’ minimum wage profoundly divide the two sides of the Atlantic. This is even truer today with the new German Coalition Government starting a rollback of the economic reforms introduced by Chancellor Schroeder (the new government is introducing a nationwide minimum wage, a lower retirement age in some sectors, and possibly implementing stricter limits on temporary workers).
 
In short, TTIP negotiators should be very pragmatic. It would be better not to open markets in a rent-creating way and to reject the temptation to be norm-setter (i.e. to impose norms on the partner and/or on the world). On the contrary, negotiators should rely on regulatory dialogues promoting regulatory emulation for the best and aim for a ‘living’ agreement. These are a few recipes for a TTIP meeting the ‘pro-jobs’ political target.

This expert opinion is one of a series of articles on trade agreements. The series was published shortly before the start of the 7th round of negotiations on TTIP on 29 September and the expiry of the deadline for signing the EPAs that the EU has set at 1 October. Please find the other articles in this series here.

Photo credit main picture: John Martin via Flickr

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Patrick Messerlin

Patrick Messerlin is Professor Emeritus of economics at Sciences Po Paris and Senior Programme As...

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