Partnership Over the Atlantic

15. 3. 2017

Europe and the United States are still feeling the consequences of the global financial crisis. Economic revival in America is weak and most European countries experience a second recession in recent years. The agreement between the European Union and the United States, called the Transatlantic Partnership for Trade and Investment (TTIP), is to be the answer to these problems.

The United States and Europe are two largest and best-developed economic areas in the world, relatively open to external competition, with well-functioning legal systems protecting private ownership and ensuring security of economic transactions.

The European Union as a whole is the largest economy in the world, responsible for about one fourth of global GDP and 17 % of global trade. For the United States these figures are, respectively, 21.6 % and 13.4 %. Despite the growing importance of the so-called emerging economies (above all China, India, Brazil) the European Union and the US still jointly produce almost half of global GDP.

The Union and the US, with all the differences pointed out by political scientists and sociologists, are close to each other culturally and politically, which is of no small significance in our turbulent world. These two areas are already strongly integrated with each other through trade and investment flows as well as by the presence of transnational corporations. Last year the United States exported to Europe goods worth 265.4 billion dollars, while exports in the opposite direction were worth 381.2 billion dollars. In the last 5 months of 2013, the respective figures were 106.9 billion dollars and 157.4 billion dollars, which means a slight decline in trade exchange.

Europe is the most important trade partner of the US (with Canada second and China third). For Europe the United States is the second largest partner (after China). But in the last dozen years the volume of exchange between the two continents has not been growing. This contrasts with a rapid increase of trade between both the US and China and the EU and China.

A Free Market with Obstacles

Despite the openness of both markets, entrepreneurs on both sides of the Atlantic are complaining of barriers, which make it difficult to do good business. 46 % of respondents say that unnecessary regulations impede trade, 45 % regard tariffs and 38 % custom procedures as a problem, while 20 % claim that contrary to what is commonly believed barriers for investment do exist.

Many entrepreneurs doing business on the other side of the Atlantic complain of regulations concerning transport services, varying and incompatible technical standards regarding, for example, cars, machines and devices.

Average tariffs in transatlantic trade are relatively low. The World Trade Organisation estimates average import tariffs at 3.5 % for the US and 5.2 % for the EU. For goods from the European Union the former figure is 2.1 %, while for American exports the latter figure is 2.8 %. With the falling profit margins in manufacturing these seemingly low tariffs might mean that export of some goods is no longer profitable. Moreover, both these economic areas maintain much higher tariffs in protected sectors.

The European Union imposes the highest export toll—22 %—on lorries, with 17 % for some kinds of footwear, 14 % for audiovisual products and 12 % for clothing. The US keeps high rates for processed food products (exorbitant 350 % for cigarettes) and some industrial products: Textiles 40 %, clothing 32 %, leather goods and footwear 56 %. But these high tariffs concern a minor part of transatlantic trade—2 % of EU imports and 0.8 % of US imports.

Still we must remember that European and American companies are closely connected with each other. The same distribution channels are stretched over the Atlantic. European companies invest in their American subsidiaries and vice versa—firms based in the US build networks of subsidiaries in Europe. This means that tariffs become a tax on internal operations within corporations. They raise production costs and reduce competitiveness of transatlantic companies.

Troublesome Details

Although general regulations on goods and services are similar on both sides of the Atlantic, the details might be surprisingly troublesome. For example, in the United States, car manufacturers cannot sell them directly to clients. And the European Union maintains restrictive and not always justified regulations concerning the quality, packaging and labelling of various goods. Especially important for the EU are regulations regarding protected geographic product names, that is labels suggesting the place of origin of a given product, such as champagne. Much more important for the US is protection of intellectual property.

Research shows that differing regulations create the most serious barrier in entering the market across the Atlantic for small and medium sized companies.

Another problem is presented by incompatible standardisations and procedures involved. It regards in particular the security of electric devices. Procedures in this area are different in Europe. Sometimes we see opposite cases, for example in car manufacturing—in Europe you must acquire a certificate to place a product on the market while in the US a declaration saying that your product meets security standards is sufficient.

The services market is much more open in Europe than in the US. European lawyers, architects or engineers have problems with entering the American market. European businesspeople complain that it is difficult to enter the American market with such services as sea and air transport or courier deliveries. European airlines are allowed to have only up to 25 % shares in airlines operating on the US market. In the 1920s, American trade unions successfully fought to achieve a ban on using foreign ships and ship owners in transport of coasting cargo, that is between American ports.

Limited access of European companies to the market of public tenders poses a serious problem. Although access for European firms is guaranteed by an agreement concluded in 1995 under the auspices of the World Trade Organisation, some American federal institutions (for example the Federal Air Marshal Service) choose their contractors exclusively among American companies. Moreover, in many tenders American small and medium size firms receive systemic preferences and consequently their competitors are virtually doomed to lose. And it regards such important areas as construction or supplies for railways. Thirteen states completely exclude foreign firms, European ones as well of course, from public tenders. In other states, there are similar bans on municipal or county level.

The Beginning of Long Negotiations

American and European politicians hope that thanks to the Transatlantic Partnership for Trade and Investment they will succeed in increasing the volume of trade in goods and services, intensify investment flows and mutually allow companies on both sides of the Atlantic to enter the market of public tenders.

An important step towards an agreement was made on 28 November 2011. President of the European Commission José Manuel Barroso, President of the EU Council Herman Van Rompuy and President of the US Barack Obama established a Working Group tasked with identifying fundamental problems impeding transatlantic exchange and prepare proposed solutions. The report of the Working Group was published on 13 February 2013 and approved by the European Commission.

EU member countries agreed that the European Commission will continue the talks with the US government on their behalf. On 17 June, during the G-8 summit, the American President, the head of the European Commission and the British Prime Minister jointly declared that the partnership was of crucial importance for both transatlantic economies.

The first round of talks took place from 8th to 12th July in Washington. The next round will be conducted in October in Brussels. A European negotiator Ignacio Garcia-Bercero (Director General for Trade in the European Commission) said that the main goal had been achieved, which made it possible to… hold another two rounds. Hiding behind these general statements are problems, which will be difficult to solve. The Partnership Agreement will not be a general declaration but it will concern hundreds, if not thousands of specific regulations, which impede trade and mutual investment. Therefore, no one is under any illusion that the agreement will be signed quickly.

The talks are confidential, which raises distrust of certain observers. It is known that the United States will press on the Partnership to comprehensively cover the protection of intellectual property. Some fear that the ACTA (Anti-Counterfeiting Trade Agreement) will be introduced through the back door—this agreement on fighting trade in counterfeit products was rejected by the European Parliament in early 2012. We already had the first conflicts during the negotiations. EU negotiators explained to their American counterparts the consequences of excluding the audiovisual sector from the EU negotiating mandate. “We will not negotiate audiovisual services. We will hear what the US has to say in this matter if it takes up the subject”—said Ignacio Garcia-Bercero. Excluding this sector from the negotiations is, of course, the result of French pressure.

We know from unofficial sources that so far the negotiators identified areas where there is common ground and those where positions differ. They are also trying to develop procedures for removing differences. Negotiators have also met about 350 groups of people interested in the agreement: academics, trade unions, representatives of various industries and non-governmental organisations, and heard their “wishes and complaints” regarding the agreement.

Who Will Profit from the TTIP?

The aim of the TTIP is to boost economic growth in the United States and the European Union and to create new jobs. American and European politicians hope that by eliminating tariffs and other barriers the Partnership will increase the volume of trade and investment flows between the two continents. Companies from both sides of the Atlantic will gain better access to the services market of their partners. Common regulations on intellectual property and fair competition will be worked out.

Political leaders hope that the talks will be concluded within two years. The British prime minister estimated that the agreement would be worth 150 billion dollars for Europe, 125 billion dollars for the United States and 130 billion dollars for the rest of the world.

However, entering into talks on the US-EU partnership does not mean that both sides will be fully satisfied. Americans fear that Europeans will want to protect some sectors from global competition. Particularly alarming is the attitude of France, its economic potential being the second largest in the European Union, after Germany. France is against liberalisation of trade in cultural goods, trying to protect French film and music industry. This attitude was criticised by the head of the European Commission Barroso, who called it “reactionary.”

In the United States, where the creation of a free trade zone with Canada and Mexico generated a lot of controversy more than a decade ago, the idea of the Transatlantic Partnership is positively received, although it might change if the talks get stuck in details.

German economists from the Ifo Institute claim that the American side will profit more from the agreement. But it is Europe that needs an incentive of a more intense competition to wring itself out of the stagnation it has been mired in for years. For our continent, the agreement may be something like letting pikes into a pond full of lazy carps.

According to Ifo the greatest EU beneficiary of the agreement will be Great Britain. The partnership may create about one hundred thousand new jobs there. But some countries will lose. For example, it is predicted that German exports to Great Britain and France will drop, for these countries will turn to American suppliers. In addition, the great trade partners of the US, that is China, Brazil or Mexico, may be negatively affected by the agreement.

So far there is no reliable prognosis of the effects of the Partnership for the countries of Central and Eastern Europe. Experience shows that businesspeople from this region are capable of leveraging the situation for their own profit when trade barriers are abolished. It will not be a big impulse for our economies, for the United States are further down on the list of recipients of goods and services from Central and Eastern European countries but it will probably be a positive impulse.

Estimates of the European Commission show that by 2027, the partnership will boost EU exports to the US by 16.16 % and US exports to Europe by 23.20 %. Such precise calculations raise astonishment or even distrust. Great Britain and Germany—the largest European partners of the US—will probably have the biggest share in this increase. But if the German economy picks up the pace as a result, Central and Eastern Europe will benefit from that.

Witold Gadomski

is an economic commentator for Gazeta Wyborcza. He specializes in economic matters. Earlier, he was the editor-in-chief of Cash weekly and of Nowa Europa daily. In the 1980s, he collaborated with opposition papers. At the beginning of the 1990s, he was a co-founder of the Liberal Democratic Congress party, headed by Donald Tusk. He is the author of the book “Leszek Balcerowicz”, and co-author of “Capitalism. Facts and Illusions”.

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