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There is a vibrant, if increasingly contentious transatlantic debate over the benefits of a further intensification of the transatlantic trade and investment relationship. According to economic analysts, without a doubt, the contemplated Transatlantic Trade and Investment Partnership (TTIP) deal concerns a true global economic heavyweight. Recent EU and US trade data revealed that, at present, the transatlantic market accounts for: 60% of total Foreign Direct investment(FDI); 50% of global output (in dollars); 40% of the global GDP (in terms of purchasing power parity); 40% of industrial added value; 1/3 of the global trade in goods and services; 1 in 3 patent applications in the world; 16% of added value in the agricultural sector; And yet only 12% of the global population.
The US-EU market also generates some USD 5.3 trillion in sales annually and employs more than 15 million workers. In addition, Johns Hopkins University studies show that the stock of EU and US investment in each other’s economy was a staggering USD 3.7 trillion in 2011, and EU affiliates alone employed some 3 million Americans in 2010. On a historic basis, the US investment position in Europe was 14 times larger than in the BRICS and nearly four times larger than in all of Asia in 2011. US investment in Ireland alone was more than six times larger than US investment in China.
If, according to critics, Transatlantic Trade and Investment Partnership offers only modest growth prospects, it bears keeping in mind that it does so on a very large economic base. On such a basis, even small percentage increases can jumpstart the recovery and create jobs. This is all the more important as this is a critical time for both the United States and the European Union with regard to achieving two counterbalancing objectives at the same time: promoting economic growth and fighting growing deficits.
According to a widely-quoted study by the German Bertelsmann Foundation, Transatlantic Trade and Investment Partnership would lead to a long-term increase in per-capita GDP of more than 13% in the United States and 5% in the European Union. Unemployment would decline by 0.45% across the entire OECD and by up to 0.76% in crisis-ridden countries like Portugal. Indeed, therefore, jobs and growth are the driving forces that can help build support for an agreement among Europeans and Americans alike. Strategically, Transatlantic Trade and Investment Partnership also helps the US and EU to meet the challenges of a globalizing world through a common cause: promoting a rules-based multilateral economic system.
The proposed deal to reach an agreement by the end of 2014 on a Transatlantic Trade and Investment Partnership, serving the world’s first and second biggest markets, the European Union and United States, is intended to deepen transatlantic relationship, assert global trade policy leadership and advance a rules-based system for the global governance.
In practical terms the deal is expected to boost combined GDP by almost 1% in the short term, add 2 million extra jobs and offer more choices and lower prices for consumers. In spite of the advantages it should bring, the proposed Transatlantic Trade and Investment Pact has already met with opposition from global stakeholders, who point to several obstacles to the success of the agreement. One of the main points of criticism is that such a trade deal would put third countries such as Canada, Mexico and Turkey, that already have bilateral agreement either with the US or EU, at a disadvantage.
Another criticism is that the eventual deal would jeopardize the functioning of the WTO. Could it hinder successful conclusion of a multilateral agreement i.e. the completion of the Doha Round? Many others cite the contentious history of the EU-US over trade policies governing global agriculture, intellectual property and information technology. Statistically speaking, modern empirical research suggests that the conclusion of important bilateral agreements actually increases the incentives of third parties to achieve further liberalization steps at a multilateral level.
According to economic analysts, this is also good for the rest of the world, given the integrated supply chains in today’s global market. Everyone can benefit from the agreement. Policymakers have drawn lessons from the most recent economic downturn. These lessons reflect a new development paradigm and reveal that international economic cooperation and integration have become imperative for addressing the nature of new global challenges.
This shift towards broader agreements responds better to today’s economic realities, in which international trade and investment are increasingly interconnected. The main objective is the consolidation and harmonization of investment rules worldwide, creating a level playing field for competition.
Other agreements currently being negotiated are the Trans-Pacific Partnership Agreement (TPP) which links North and South America with the dynamic markets across the Asia-Pacific region, as well as the EU-Japan and EU-Canada agreements, which are moving quickly toward finalization. Does a regional agreement like the one between the US and EU reduce the likelihood of successful reforms of the multilateral trade regime under WTO?
It has been demonstrated that regional integration efforts are neither a building block nor a stumbling block to the progress of multilateral liberalization. On the one hand, they reduce incentives for participating countries to make concessions at the multilateral level. On the other hand, they increase the benefits from successful multilateral negotiations for initially uninvolved countries. In particular, emerging economies could be persuaded to make concessions.
Regarding the objection that the Transatlantic Trade and Investment Partnership agreement would diminish the value of bilateral agreements with third countries, scholars suggest for countries already linked by agreement to either the EU or the US have great incentives to form a deeper partnership with the other partner with whom they do not yet have an agreement. This would allow a US-EU trade deal to eventually serve as a platform for the inclusion of other regions with which both parties have negotiations or agreements. This is the heart of the “building-block” argument.
A deeper bilateral agreement between the US and the EU poses no existential threat to the multilateral trading system. Instead, it helps this system to develop further in a more structured form. The transatlantic economic order, in the rules-based system, is unique. In the last decades, it has boosted global economic growth for a variety of stakeholders, including China. This order has the potential to integrate the rising powers into this system, but strengthening the latter remains a prerequisite.
The Transatlantic Trade and Investment Partnership is a timely political, economic and cultural partnership that, if negotiated well, should boost world economic development, strengthen the natural partnership of the West and create an international level playing field for fair competition. It may also strengthen the bonds within European Union countries.