Author: Diāna Potjomkina .
Negotiations on the Transatlantic Trade and Investment Partnership (TTIP) have almost started. Logical step as it is, just a few years ago a transatlantic free trade agreement would rather be deemed a bold guess. Since then, crisis and perhaps fear of a political drift-apart have pushed the EU and the USA to tighten their links. In this post, I recapitulate the state of play as well as some possible implications for transatlantic and global politics and for Latvian-American relations.
On March 12, 2013, the European Commission (EC) decided to request Member States' approval for starting negotiations with the US on Transatlantic Trade and Investment Partnership – just a month after President Barack Obama endorsed this initiative in his 2013 State of the Union speech. And the decision-makers on both sides of the Atlantic hope to reach results just as quickly. The deal, they say, will be closed “on one tank of gas” – until the middle or end of 2014, even before the mandate of the current EC ends.
This general decisiveness indeed seems rather unprecedented. The idea for a transatlantic economic agreement is not entirely new. Indeed, it was widely discussed about 1995, under the name of a Transatlantic Free Trade Agreement/Area (TAFTA), at the time when the New Transatlantic Agenda was also signed. However, at least on the side of American officials and businesses, it did not gain necessary momentum, and the initiative was forgotten. In 2007, the Transatlantic Economic Council was established to improve cooperation, and in 2011, under a mandate by EU-US leaders, it established a High-Level Working Group on Jobs and Growth. However, TTIP was not its initial aim; the Group proposed it this February, after deliberations, as the potentially most beneficial instrument. Calls for such an agreement became part of public debate just at the end of 2012.
Potential and risks
The deal will potentially bring large benefits to both sides. EU and US together account for 47% of global GDP and have the largest trade relationship in the world – around 2 bn EUR daily. The investments are as notable: in 2010, investment from the EU brought 72% of all FDI into the US, and European companies contributed approx. 3.5M American jobs. Similarly, the US is the largest investor in EU economy. Despite the official calls for a comprehensive agreement, there are more optimistic and pessimistic scenarios depending on whether the deal tackles only tariffs, now generally esteemed as 3-4% on average, or non-tariff barriers, public procurements and services as well. A recently published assessment commissioned by the EC states that in the first, pessimistic, case the EU's GDP would increase by EUR 24 bn and the American one – by EUR 9 bn. If the more difficult barriers are overcome, gains could amount to, respectively, EUR 68-119 bn and EUR 50-95 bn. As suggested by the High Level Working Group on Growth and Jobs, both the EU and the US would experience a 0.5% GDP increase; other estimates quote 2%.
Additionally, there is a political dimension. The agreement could allay certain fears in Europe that the US are repositioning towards the Pacific (the author's belief is that these fears lack justification anyway). It would reconfirm the strategic partnership and possibly even generate spillover, particularly if trade disputes are overcome and a problem-solving approach is reinstated.
There are of course many risky aspects, and the areas where liberalization would bring greatest benefits are also the most challenging to liberalize. As the EC estimates, trade disputes currently affect only 2% of EU-US trade. However, there are certain tariff-created trade impediments (e.g. for textiles) and subsidies, and success to a large extent relies on greater regulatory convergence, solving safety, hygiene and intellectual property concerns (e.g. concerning GMOs, Geographic Indications etc.). There are also challenges in regard to services, some of which are regulated at the state level in the US, and to public procurements, which are also state-regulated.
Whatever the risks are, currently the consensus on reaching a deal is solid – one might even say, surprisingly solid – on both grassroots and highest official and political levels. Among the most vocal supporters one can mention not only Obama's administration and European Commission, but also, for example, Germany, and also European Parliament's support augurs well for the ratification of the deal. During the preliminary negotiations, some of the objections, e.g. on certain US meat imports in the EU, have already been dropped. Opposition by general public is unlikely. As demonstrated by the latest Transatlantic Trends, both American and European societies have a positive view of each other (notably, US Democrats are more positive than Republicans), and a more positive view of their respective Transatlantic partner than of Asian countries. (It will be very interesting to see how the public and political opinion evolves in the course of negotiations, when the more skeptical groups also get a say.)
The global impact of the transatlantic agreement seems to be less clear though. Several authors suggest that one of the aims in this process is to dictate global norms, in the light of the failed Doha round, and to curb growing influence of Asian and other emerging economies. Here, one can ask not only whether other players would be willing and ready to join, and whether the bloc would be open to other participants, but also how this could influence global development, income inequality, social and environmental protection etc. (although the EC argues EU and US trade with the rest of the world would increase, and the overall impact on GDP would be positive). Another issue is how different trade agreements already in existence are going to match among themselves. The US has FTAs with 19 countries, and, along with TTIP, Obama's goal is to complete negotiations on a Trans-Pacific Partnership (TTP), launched already in 2005, which also aims to align regulations and tackle other difficult issues. The EU has agreements in force with 29 countries, plus some pending. (An agreement with Canada, which is also a member of NAFTA, is to be finalized soon, although in this case some unresolved issues still remain in regard to agriculture, car industry and pharmaceuticals). If all these agreements are aligned, it would speed up emergence of truly global norms. However, as Mireya Solís and Justin Vaïsse note, “There is a danger that negotiations on each FTA [TTIP and TTP] will yield idiosyncratic rules that fail to generate global standards, and instead compartmentalize the world economy.” International trade agreements tend to be difficult to reach and difficult to change.
Latvia has already voiced its support for the TTIP, which goes well with our newly-found focus on Latvian-American economic relations. Economic impact for Latvia is still to be evaluated, depending on all the particulars of the final deal. US's share in Latvian external trade has, except for one year, been below 3%, and dropped below 1% in 2010, and the amount of investments also can likely be increased. There might also be positive impact on Latvia’s participation in the Northern Distribution Network and the potential reverse trade route. On the other hand, Latvia will have to increase its competitiveness to benefit from TTIP, but this should not be considered a minus. One can be more confident about the positive political impact of the deal. For a long time, Latvian attitudes to the USA were predominantly situated within the military-political framework, and a large part of the public could not see in this partnership immediate benefits for themselves. Broader EU-US relations were also overlooked, even in the political and academic discourse. Some changes became visible in the last years, but the debate on TTIP, apart from its economic implications, could speed up this process and contribute to a new, more multidimensional understanding of the US in Latvia.
 Countries and regions: United States, European Commission, http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/united-states/
 President Barack Obama's 2013 State of the Union Address — as delivered, The White House, http://www.whitehouse.gov/state-of-the-union-2013
 Claudi Pérez y Antonio Caño, "EE UU y la UE negocian un acuerdo de libre comercio ante la crisis", El País, 13.02.2013., http://internacional.elpais.com/internacional/2013/02/13/actualidad/1360787176_148401.html?rel=rosEP; Nicholas Kulish and Jackie Calmes, “Obama Bid for Europe Trade Pact Stirs Hope on Both Sides”, 13.02.2013., New York Times, http://www.nytimes.com/2013/02/14/world/europe/obama-bid-for-trade-pact-with-europe-stirs-hope.html?pagewanted=2&_r=0&nl=todaysheadlines&emc=edit_th_20130214
 Charles P.Ries, “TAFTA: SMEs Would Benefit Greatly”, 06.02.2013, Rand Corporation, http://www.rand.org/blog/2013/02/tafta-smes-would-benefit-greatly.htm; John Peterson, Maria Green Cowles, “Clinton, Europe and Economic Diplomacy: What Makes the EU Different?”, Governance: An International Journal of Policy and Administration 11, No. 3 (1998), http://www.american.edu/sis/faculty/upload/cowles-clinton-europe.pdf
 Countries and regions: United States, European Commission, http://ec.europa.eu/
 Federico Steinberg, “Hacia el área de libre comercio del Atlántico Norte,” 14.02.2013, Real Instituto Elcano, http://www.realinstitutoelcano.org/wps/portal/rielcano/contenido?WCM_GLOBAL_CONTEXT=/elcano/elcano_es/zonas_es/opinion-steinberg-area-libre-comercio-atlantico-norte. According to the U.S. government data, trade is somewhat lower – USD 646 bn last year, see Nicholas Kulish and Jackie Calmes, “Obama Bid for Europe Trade Pact Stirs Hope on Both Sides”, 13.02.2013., New York Times, http://www.nytimes.com/
 Paula Dobriansky, Paul Saunders, “How About a Free-Trade Deal With Europe?”, 08.07.2012, The Wall Street Journal, http://online.wsj.com/article/SB10001424052702304141204577510700096660154.html
 “Why America and Europe need a free-trade deal – and why they might fail to get one”, The Economist, 02.02.2013, http://www.economist.com/news/europe/21571195-why-america-and-europe-need-free-trade-dealand-why-they-might-fail-get-one-transatlantic?fsrc=scn/tw_ec/transatlantic_trading
 Federico Steinberg, „Hacia el área de libre comercio del Atlántico Norte,” 14.02.2013, Real Instituto Elcano, http://www.realinstitutoelcano.org/; Nicholas Kulish and Jackie Calmes, “Obama Bid for Europe Trade Pact Stirs Hope on Both Sides”, 13.02.2013., New York Times, http://www.nytimes.com/
 Joseph Francois et al., Reducing Transatlantic Barriers to Trade and Investment: An Economic Assessment, Final Project Report, Framework Contract TRADE10/A2/A16 (London: Centre for Economic Policy Research, March 2013), http://trade.ec.europa.eu/doclib/docs/2013/march/tradoc_150737.pdf
 Laurent Donceel, “An EU-US free trade agreement is far from a done deal”, 28.02.2013, LSE EUROPP, http://blogs.lse.ac.uk/europpblog/2013/02/28/eu-usa-free-trade-deal/
 Benjamin Fox, “Obama gives green light to EU-US trade deal”, 13.02.13, EU Observer, http://euobserver.com/economic/119051
 See “Trans-Atlantic Trade Stimulus”,, 04.12.2012, The Wall Street Journal, http://online.wsj.com/article/SB10001424127887323401904578159051608592418.html
 Sinan Ülgen, “Back to the Future: The Renewed Case for a Transatlantic Free Trade Agreement”, 07.12.2012, Carnegie Europe, http://carnegieeurope.eu/strategiceurope/?fa=50289; “ Why America and Europe need a free-trade deal – and why they might fail to get one”, The Economist, 02.02.2013, http://www.economist.com/
 Peter Taberner, “Progress on EU-US trade deal”, 10.02.2013, http://www.neurope.eu/article/progress-eu-us-trade-deal?utm_source=NEW+EUROPE+Newsletter&utm_campaign=22c6cdbdbd-_New_Europe2_11_2013&utm_medium=email
 Country Profile: The United States, Transatlantic Trends, http://trends.gmfus.org/transatlantic-trends/country-profiles-2/united-states/; Transatlantic Trends: Key Findings 2012, http://trends.gmfus.org/files/2012/09/TT-2012_complete_web.pdf
 Federico Steinberg, “Hacia el área de libre comercio del Atlántico Norte,” 14.02.2013, Real Instituto Elcano, http://www.realinstitutoelcano.org/
 See e.g. Ulrich Speck, “Toward a New Transatlantic Partnership”, 01.03.2013., Carnegie Europe, http://carnegieeurope.eu/strategiceurope/?fa=51084
 Independent study outlines benefits of EU-US trade agreement, MEMO/13/211, 12.03.2013, http://europa.eu/rapid/press-release_MEMO-13-211_en.htm
 Countries and regions: United States, European Commission, http://ec.europa.eu/
 President Barack Obama's 2013 State of the Union Address — as delivered, The White House, http://www.whitehouse.gov/
 Mireya Solís, Justin Vaïsse, “Free Trade Game Changer”, Memorandum to the President, 17.01.2013, Brookings, http://www.brookings.edu/research/papers/2013/01/free-trade-game-changer. TTIP is to be finalized in 2015, and its potential signatories are US, Australia, Malaysia, Vietnam, Singapore, New Zealand, Chile, Peru, Brunei, Canada, Mexico, and perhaps Japan and South Korea – see Javier Solana, “Transatlantic Free Trade?”, 28.12.2012, Project Syndicate, http://www.project-syndicate.org/commentary/why-the-us-and-the-eu-need-a-free-trade-agreement-by-javier-solana
 “EU Leaders Throw Weight behind US Trade Talks,” 08.02.2013, EU Observer, http://euobserver.com/economic/119008
 Alejandro Bolaños, “Canadá abre camino a Europa”, El País, 17.02.2013, http://economia.elpais.com/economia/2013/02/15/actualidad/1360954691_139301.html
 Mireya Solís, Justin Vaïsse, “Free Trade Game Changer”, Memorandum to the President, 17.01.2013, Brookings, http://www.brookings.edu/
 See Edgars Rinkēvičs aicina Džonu Keriju atbalstīt Austrumu partnerības valstis un plašāk iesaistīt Centrālāzijas valstis Afganistānas stabilizācijā, 27.02.2013, Latvijas Republikas Ārlietu ministrija, http://www.mfa.gov.lv/lv/Jaunumi/zinas/2013/februaris/27-5/
 Author's calculations based on the data of the Central Statistical Bureau, http://www.csb.gov.lv/