TTIP of the Iceberg?

Feidhlim McGowan talks through the secrecy and doubt surrounding the Trans-Atlantic Trade and Investment Partnership


“Drugs are bad, m’kay?” One of the many memorable catchphrases in the comedy South Park, made by the teacher Mr. Mackey. Blunt statements like this are a convenient way to shut down discussion on a topic before pesky counterpoints are forwarded. Expect to hear another one over the coming year: “Free trade is good, m’kay?”

The Transatlantic Trade and Investment Partnership (TTIP) is a planned trade agreement between the US and the EU. It is not particularly concerned with removing tariffs as these have mostly been eliminated in goods traded across the two jurisdictions already (one exception being fancy chocolates). Instead, it focuses on harmonising regulatory and other non-tariff barriers.

For example, there is currently no trade in oysters across the Atlantic due to differing tests for bacteria, both of which are perfectly safe. In the US they test the water around the oyster, while the EU tests the oyster itself. TTIP would fix this problem, thereby removing the potent irony from the phrase “the world is your oyster” for the well-to-do Europeans who gaze morosely across the ocean, eager but unable to indulge in a few of Cape Cod’s finest molluscs.

So is the deal done and dusted? Unfortunately, it’s not time to retire to the oyster bar just yet as the EU has many reservations (not the restaurant type) about aspects of the proposed treaty. One is that harmonisation will lead to a lowering of standards to that of the US. For instance, cosmetics can be tested on animals in the US but such practice is banned in the EU. It is hard to see how trade can be opened up in pharmaceuticals without the EU having to compromise on its principles.

Whilst Europe is more than willing to import popular culture from across the pond, there is markedly less enthusiasm for the arrival of US corporate culture, given the negative effects it may have for the environment, consumers and workers. Taking just the last of these groups, a 2007 Harvard report comparing annual leave across Western countries dubbed the US as the “no vacation nation”. It provides no statutory paid maternity leave either. Europeans are worried that what essentially amounts to widening the single market to include the world’s largest economy will amplify the influence of their economic model on the EU.

More substantially, EU citizens are worried by the level of secrecy involved in the talks. Confidentiality is nothing new for trade negotiations but the insidious Investor-State Dispute Settlement (ISDS) clauses that have been included in other treaties like NAFTA at behest of American corporations (and proposed for TTIP) are a genuine cause for concern. These clauses allow a corporation to sue a government for introducing legislation that may damage their future expected profits, with the dispute to be settled in an international court of arbitration. This channel is currently being used by Phillip Morris’ Hong Kong subsidiary to sue Australia for bringing in a law mandating plain packaging on cigarettes.

Objections to the TTIP have been painted by some as scaremongering by conspiracy theorists. If that’s true, they have some unlikely tin-hats on their side. The Nobel Laureate Joseph Stiglitz wrote in May that these trade treaties entail “imposing fundamental changes to countries’ legal, judicial, and regulatory frameworks, without input or accountability through democratic institutions.”

Karel De Gucht, The European Commissioner for Trade, made a statement in July of last year to address the three main concerns of the European Parliament in relation to TTIP: “the alleged lack of transparency, the alleged risk of lowering of regulatory standards which underpin our way of life and ISDS.” On the first point he essentially blamed the US for the secrecy on the basis of reciprocity: “the US only gives access to their Parliament on a reading room basis . . . it is particularly difficult to convince my American counterpart to go any further with ‘our’ Members of Parliament”. On the second point he pointed out instances where the US has stricter standards, and given their recent discovery of VW’s emissions deceit this point is somewhat credible. On ISDS he could only point out the EU’s hypocrisy as it insists on similar clauses in bilateral trade deals with China. He said that negotiation on this point has been suspended in order to conduct a “public consultation”.

Although there are some creases to be ironed out, the potential gains to GDP from further free trade are substantial, right? Well that used to be the case, but unfortunately not anymore. Paul Krugman, another Nobel Prize winning economist, notes that current effective tariff levels (i.e the financial cost of red tape and actual tariffs combined) are already low enough that any GDP gains from further liberalisation will be “indistinguishable from statistical noise”. Furthermore, he argues that the primary problem in the world economy today is inadequate demand, and further trade liberalisation will do little to fix this problem. Although each country will sell more to foreigners, they will also import more stuff from abroad. So the composition of world expenditure will change but there’s no reason to believe it will increase dramatically. No magic bullet then.

So in short, the Western world has already heeded the ‘free trade is good’ argument based on the impeccable logic of comparative advantage (i.e. specialise in what your best at) and obtained a higher standard of living as a result. Since the economic theory suggests the gains from further free trade diminish greatly, and mindful of the risks mentioned above, in order to convince the rest of us that TTIP is a good idea the Mr. Mackeys of the trade world may need to make a more compelling argument.