THE TRANSATLANTIC TRADE AND INVESTMENT PARTNERSHIP (TTIP)

AND THE FUTURE OF U.S.-EU ECONOMIC RELATIONS

Earl H. FryProfessor of Political Science

Brigham Young Universityearl_fry@byu.edu

American Chamber of Commercein Luxembourg

May 12, 2015

What is the TTIP?

• Proposed Transatlantic Trade and Investment Partnership• Launched negotiations July 2013 involving U.S. (320 million people) and

European Union (composed of 28 nations and 507 million people)

• EU Trade Commissioner Cecilia Malmström and U.S. Trade Representative Michael Froman directing the negotiations

• 9th round of negotiations held in New York City April 20-24, 2015

• Negotiations for U.S. occurring at same time as ongoing talks on a Trans-Pacific Partnership (TPP) (U.S., Japan, Malaysia, Singapore, Vietnam, Brunei, Australia, New Zealand, Mexico, Chile, and Peru)

The Economic and Geo-Strategic Considerations

• NAFTA, TPP, and TTIP would make the U.S. a signatory to agreements covering most of the world’s trade, investment, and consumer markets

• NATO and TTIP within the parameters of a more dangerous and uncertain European continent

• Burden-sharing• The energy dimension• The transatlantic region in comparison to Asia circa 2050—could over

half of world’s population, GDP, exports, and direct investment be concentrated in Asia by mid-century?

• Supply chains

Defense Spending by NATO Member Countriesas Percentage of GDP, 2010 and 2013

• Albania 2.0, 1.4• Belgium 1.1, 1.0• Bulgaria 1.7, 1.4• Croatia 1.5, 1.5• Czech Rep 1.4, 1.1• Denmark 1.4, 1.4• Estonia 1.8, 2.0• France 2.0, 1.9• Germany 1.4, 1.3• Greece 2.9, 2.3

• Romania 1.3, 1.4• Slovak Republic 1.3, 1.0• Slovenia 1.6, 1.1• Spain 1.1, 0.9• Turkey 1.9, 1.8• UK 2.7, 2.4• NATO - Europe 1.7, 1.6• Canada 1.5, 1.0• United States 5.4, 4.4• NATO Total 3.3, 2.9

Source: NATO, “Financial and Economic Data Relating to NATO Defense,” March 2011 and February 2014

• Hungary 1.1, 0.9• Italy 1.4, 1.2• Latvia 1.0, 0.9• Lithuania 0.9, 0.8• Luxem 0.5, 0.4• Neth 1.4, 1.3• Norway 1.5, 1.4• Poland 1.9, 1.8• Portugal 1.6, 1.5

The International, National, and Regional Settings

• The “triple combination” of• Globalization• Unprecedented technological change• Creative destruction

• In the United States during calendar year 2012, 800,000 new businesses were created and 733,000 terminated

• In the United States from mid-2013 through mid-2014, 28.7 million private-sector jobs created and 25.7 million terminated

• U.S. civilian labor force totals 157 million with a 62.7% labor participation rate

• European Union and Eurozone• North American Free Trade Area (NAFTA)• Asia and emerging markets

Major Objectives of TTIP

• Reduce trade and investment barriers while maintaining health, safety, and labor standards, privacy rights, individual’s financial security, and overall environmental protection

• Major goal reduced regulations and reduced tariff and non-tariff barriers in agriculture and industrial sectors

• Another objective liberalized rules covering trade in services• Permit companies easier access to public procurement contracts• Establish a level playing field between private and state-owned

enterprises (SOEs)• Strengthen intellectual property protection (IPR)

Why Now From U.S. Vantage Point?

• U.S. already number one export market for EU companies• 2014 U.S. exported more goods to Canada with 35 million people

than to EU with over 500 million people• Hasten recovery from Great Recession• Facilitate much greater foreign direct investment (FDI) flows and

supply-chain expansion• Improve transatlantic competitiveness • Combat specter of transatlantic drift and global shift to Asia and

emerging markets

What Are Immediate Prospects for Approving TTIP?

• Recent developments in the U.S. Congress:

• President Obama very much in favor of TTIP but many Democratic Party members of Congress lukewarm or opposed

• Many Republican members of Congress agree with the concept of TTIP but are hesitant to act alone without sufficient Democratic Party support

• Labor and environmental groups and populists are generally opposed to TTIP (too much power to corporations and insufficient protection of jobs)

• Important role of November 2014 congressional elections—Republicans now control House of Representatives and Senate—unofficial 60 vote hurdle in the Senate

• Obama is a “lame-duck” President and his approval rating currently at 48%--70% of Americans still “dissatisfied” with the direction U.S. is going

• European Parliament elections last May added more populists, nationalists, and Eurosceptics

Glimmer of Hope?

• Bill Clinton, a Democratic President, orchestrated the passage of NAFTA in 1993 even though a majority of Democrats in both chambers voted against it

• If Trade Promotion Authority (TPA) is granted to the President by Congress, the prospects for TTIP are much brighter

• Plurality of Americans believe U.S. influence globally has waned over past decade, but strong majority believe U.S. involvement in the global economy has been positive

• Recent compromise between Republicans and some Democrats on Capitol Hill

Difficult Issues—Real or Alleged• Is their sufficient “value added”?• Agricultural roadblocks, including GMOs• Good for multinationals, not so much for SMEs and work force• Is timing right for an EU which continues to face numerous internal

issues, including very slow economic growth, job creation, and some major regional disparities?

• Concern about transparency in negotiations and the democratic process

• Rise in European populism and nationalism• Achieving consensus among all 28 nation-states within EU (how will

Greece vote?)

Investor-State Dispute Settlement (ISDS)• Over last half century, 180 countries have entered into more than 3,000 agreements

providing some form of investment protection—European countries are party to more than 1,400 of these agreements vs. about 50 for United States

• In NAFTA from 1996 to beginning 2015, 77 cases filed, 35 vs. Canada, 22 vs. Mexico, 20 vs. U.S.—3 decided officially vs. Canada, 5 vs. Mexico, 0 vs. U.S. (some others decided out of court)

• From CETA and TPP negotiations, should find: • Governments will continue to regulate in the public interest—including health, safety, & environment—

cannot be sued by investors when governments act in “good faith” • Easier to dismiss frivolous claims• Closing of loopholes preventing sham corporations from accessing investor protection• Proceedings will be open and permit non-parties to file briefs before the dispute panels

• International Centre for Settlement of Investment Disputes (ICSID)—World Bank-affiliated

Overall Transatlantic Unity in a Stressful Period

• NATO and Russia’s involvement in Ukraine• Burden-sharing tends to place most of the financial burden for

defense on Washington (70% of overall spending)• TTIP would strengthen the overall transatlantic alliance and take away

some of the sting felt in Europe over Obama’s “pivot” to Asia• TTIP could eventually be expanded to other “like-minded nations” and

compensate for the lack of multilateral trade and investment liberalization on the part of the World Trade Organization (WTO)

resources

environment

energy

conflictweapons proliferation

crime

economics cyberspace

immigration

religion and ideology

culture

INTERNATIONAL EVENTS ARE TRANSFORMING LIFE IN THE UNITED STATES

INTERNATIONAL SECTOR

AMERICAN CITIES AND NEIGHBORHOODS

terrorism

sports and entertainment

disease

Member-States GDP (US$ billions) World Ranking

Germany 3,730 4

France 2,806 5

United Kingdom 2,678 6

Italy 2,150 8

Spain 1,393 13

Netherlands 854 17

Sweden 580 22

Poland 526 23

Belgium 525 24

Austria 428 28

Denmark 336 34

Finland 267 42

Greece 242 43

Ireland 232 45

Portugal 227 48

Czech Republic 209 50

Romania 190 53

Hungary 133 59

Slovak Republic 98 63

Luxembourg 60 73

Croatia 58 74

Bulgaria 54 78

Slovenia 48 83

Lithuania 46 86

Latvia 31 97

Estonia 25 102

Cyprus 22 105

Malta 10 138

European Union’s Member-States’ GDP and World Ranking 2013

U.S. State GDP World RankingCalifornia 2203 8

Texas 1533 12New York 1311 14

Florida 800 18Illinois 721 19

Pennsylvania 645 20Ohio 565 22

New Jersey 543 22North Carolina 471 27

Georgia 455 27Virginia 453 27

Massachusetts 446 27Michigan 433 27

Washington 408 28Maryland 342 33

Indiana 317 35Minnesota 312 35Colorado 294 36

Wisconsin 282 36Tennessee 288 37Missouri 276 38

Wisconsin 282 38Arizona 279 38

Louisiana 254 42Connecticut 249 42

Oregon 220 47Alabama 194 52

South Carolina 184 54Kentucky 183 55Oklahoma 182 55

Iowa 166 57Nevada 132 58

Utah 141 58Arkansas 124 59

District of Columbia 113 60Mississippi 105 61Nebraska 110 61

New Mexico 92 63Hawaii 75 66

West Virginia 74 66New Hampshire 68 69

Delaware 63 71Idaho 62 72Alaska 59 73

North Dakota 56 75Maine 55 76

Rhode Island 53 78South Dakota 47 82

Wyoming 45 85Montana 44 85Vermont 30 98

Comparison of EU Member-States and US States: GDP and World Ranking, 2013

Member-States GDP (US$ billions) World Ranking

Germany 3,730 4

France 2,806 5

United Kingdom 2,678 6

Italy 2,150 8

Spain 1,393 13

Netherlands 854 17

Sweden 580 22

Poland 526 23

Belgium 525 24

Austria 428 28

Denmark 336 34

Finland 267 42

Greece 242 43

Ireland 232 45

Portugal 227 48

Czech Republic 209 50

Romania 190 53

Hungary 133 59

Slovak Republic 98 63

Luxembourg 60 73

Croatia 58 74

Bulgaria 54 78

Slovenia 48 83

Lithuania 46 86

Latvia 31 97

Estonia 25 102

Cyprus 22 105

Malta 10 138

Utah’s (Bangladesh’s) Business Community and TTIP

• If producing a globally competitive good or service, take advantage of the international marketplace consisting of over 95% of the world’s customers and 80% of global GDP

• The EU has a larger population base and larger combined economy than the United States, representing huge market potential, especially for SMEs

• Accord would solidify the economic, political, and strategic competitiveness of the transatlantic region

The Future• USTR Michael Froman in Berlin, May 5, 2014:

“With a free trade area we can set standards with respect to third countries and the entire world: on labor rights, environmental standards or protection of intellectual property rights. All of these are about creating jobs, improving competitiveness and furthering innovation.”

• A NAFTA-EU link in the future? Mexico already has a trade agreement with the EU, and Canada has an agreement awaiting ratification. If NAFTA and EU join together, there will be a combined market of almost 1 billion people and an annual GDP of $35 trillion.