Q&A: The Impact of the Transatlantic Trade and Investment Partnership Deal on USA and EU Business Environments
The Transatlantic Trade and Investment Partnership (TTIP) is a trade deal currently under negotiation between the EU and the USA, which could create the world’s biggest free trade zone, boosting trade between the two. It would do so by removing trade barriers between them and harmonising regulations. Exports from the USA to the EU-28 countries declined from 21.0% of total US exports in 2009 to 17.1% by 2014.
- What existing free trade agreements do the EU and the USA have in place?
- Why do the USA and the EU want to form the Transatlantic Trade and Investment Partnership (TTIP)?
- What issues would the Transatlantic Trade and Investment Partnership (TTIP) need to address?
- What positive impact could the deal have on economies in the EU-28 and the USA?
- What are the likely drawbacks of the TTIP for the US and EU business environments?
What existing free trade agreements do the EU and the USA have in place?
- The EU itself is effectively a free trade zone for countries that are member states. All members of the EU currently have a complete absence of trade barriers under EU legislation when trading with other member states. Additionally, the EU has numerous other free trade agreements (FTAs) with Chile, Mexico, South Africa and South Korea, while others are under negotiation;
- The USA is a member of the North American Free Trade Agreement (NAFTA), alongside Canada and Mexico, which removes trade barriers between the three economies. It is also a signatory to the Dominican Republic-Central America Free Trade Agreement, which creates a free trade zone between the USA and some smaller Latin American markets such as Costa Rica.
Why do the USA and the EU want to form the Transatlantic Trade and Investment Partnership (TTIP)?
- Trade between the USA and the EU-28 member states has either declined or stagnated in terms of the proportion accounted for by each of their respective total imports and exports from 2009-2014. Exports from the USA to the EU-28 fell from 21.0% in 2009 to 17.1% in 2014, while the proportion of the EU-28’s total exports fell from 6.2% in 2009 to 5.9% by 2014. It is hoped that the TTIP would reverse this trend, boost trade flows both ways, and stimulate economic growth in member countries.
What issues would the Transatlantic Trade and Investment Partnership (TTIP) need to address?
- The TTIP would need to overcome some obstacles to trade between the USA and the EU-28, such as differing food and cosmetics legislation and banking regulations. Food and cosmetics regulations in the USA are arguably less stringent than in the EU. A key difference is that foods using genetically modified (GM) crops are largely permitted and sold in the former, while the latter restricts their usage to a far greater degree. The EU is also less permissive when it comes to cosmetics ingredients than the USA;
- On the other hand, banking regulations in the USA on the whole are stricter than in the EU-28. There have been some concerns that the TTIP could destabilise the US banking sector if introduced.
What positive impact could the deal have on economies in the EU-28 and the USA?
- One of the key commodities traded between the EU and the USA is fossil fuels. The deal would offer the EU the chance to buy fossil fuels from the USA at reduced rates, benefitting companies through reduced production costs, and offering scope to reverse the squeeze on profit margins caused by rising energy costs. Total imports of mineral fuels to the EU rose sharply from US$562 billion in 2009 to US$1.0 trillion by 2014. Around a third of the EU’s crude oil imports come from Russia according to Europa. The deal could enable the EU to scale down its reliance on Russian fuel and thus improve business confidence, given that in February 2015, Putin threatened to cut Russia’s gas supply to Europe;
- The deal could benefit consumer goods companies based in the countries involved by widening their potential market and consumer bases, and boost profits by reducing trading costs and cutting regulations. Small and medium sized companies in particular would be likely to benefit, as they can lack the resources to overcome regulatory barriers to trade in foreign markets.
What are the likely drawbacks of the TTIP for the US and EU business environments?
- The likely impact on employment environments in the USA and in the EU is disputed. Labour regulations in the USA are tipped more heavily in favour of employers than in some EU markets, which could lead to companies shifting jobs to the former. This could increase unemployment rates in the EU, a region which already has some of the highest in the world. While the EU average unemployment rate in 2014 was 10.2% of the economically active population, some of its member states were far higher: Spain’s 2014 rate was 24.4%, while Greece’s was 26.6%. On the other hand, proponents argue that the boost to companies operating in TTIP markets would create jobs;
- The TTIP has been largely negotiated behind closed doors between leaders in the EU and the USA. This has drawn criticism from some that the public in affected countries have not been consulted, especially regarding contentious aspects of the TTIP, such as the potential opening of EU public services such as the United Kingdom’s National Health Service (NHS), to private investment. Disaffection among the public is likely to lead to increased political instability, as measured by the World Bank’s Political Stability and Absence of Violence Index. The USA’s ranking in was already quite low at 66th in 2013 (latest data available) out of 203 countries, while Spain’s was 106th and the UK’s was 72nd.