Seven questions and three recommendations about TTIP

Let me  raise some questions about the feasibility of TTIP which to me, after nine rounds of negotiations, looks more and more like Howard Hughes’ famous sea plane, the Spruce Goose, which was so big and heavy that it took off, but never flew, and since 1947, has become a tourist attraction in Minnville, Oregon.

The first question is about growth and jobs, which has been the mantra of the past seven years in the EU, so far without success. Can TTIP provide a solution? The most likely answer is this: ‘we don’t know’! The trade-growth relationship is indeed complex and it goes both ways. Trade liberalisation exerts a long-term transformative function, but for large economies, such as the EU and US, domestic demand in the short term matters more. Today, the redistribution factor has become as central as competitiveness in the pursuit of growth. IMF and OECD studies have confirmed the deflationary character of growing inequalities.

In Europe, the eurozone recovery is blocked by the debt overhang and the credit crunch. Without debt mutualisation and restructuring, there won’t be a recovery. In America, the excessive concentration of wealth and income inhibits growth, and transatlantic trade will suffer as a result.

And precisely, not only will TTIP-led growth be modest (0.5% over 10 years from the end of the negotiations), but it won’t benefit all member states equally: there will be losers and winners. Divergence within the eurozone, whose stability is already undermined, will worsen and inequalities within countries will rise. But, contrary to the US, the EU still has no central budget for coping with divergences across states, whilst national solidarity systems are put under stress by tax competition, another key fault-line of EU governance, which does not exist in America.

The second question is about the method. Is trade negotiation − by definition a very secretive process − the right way to build what Trade Commissioner De Gucht called a “transatlantic internal market”, considering the highly political character of the harmonisation of norms, regulatory cooperation and ISDS? Suspicion is harming the negotiations, and talks of ‘myths’, or ‘orchestrated disinformation’ from the Commission are very defensive tactics.

Thirdly, why should the EU negotiate a transatlantic market with the US while it has not yet completed its own single market in key strategic sectors such as energy, telecommunications, digital, financial services and the defence industry? All previous FTAs, concluded by the EU have been negotiated with weaker partners, but the US, because it is united, is stronger than the 28 member states of the EU put together. The asymmetry here is blatant and the high professionalism of DG Trade negotiators will not suffice to redress the systemic imbalance between the two partners. And what about the risk of having two international currencies competing over the same internal market? Another source for TTIP-scepticism!

Fourthly, by the way, is the EU negotiating with the US or with the twelve TPP trade bloc countries? Doesn’t this aggravate the asymmetry? Do European companies realise that they will eventually be competing on the US market, not only with the US, but against Chilean, New Zealand and Vietnamese firms?

The fifth question – and here we are entering into the systemic and geopolitical dimensions of TTIP – is what impact an EU-US coalition, within the WTO, would have on the multilateral trading system. We were the architects of the Bretton-Woods system. Should we take the responsibility of undermining it further, instead of shoring it up? More than ever, our multipolar world calls for a multilateral system of governance.

The last question stems from Hilary Clinton’s definition of TTIP as an ‘economic NATO’. Who is then the enemy? If it is China, we are then no longer talking ‘peace and love’ but rather ‘trade and war’. Well, I would strongly advise against containing China through trade for three reasons:

The West and Beijing both share the responsibility for “China’s peaceful rise”. For the prosperity and stability of the world, we should not isolate China.

China is not Soviet Russia; it has the capacity to answer back. It has the people, the money and the long-term vision. And above all, China has the largest and fastest growing domestic market in the world, and the CCP intends to use that growth to climb up the technology ladder and develop their own norms.

China has the capability to respond by promoting an Asian trade and currency bloc − despite the strategic tensions on its islands and borders − which would split and fragment the global economy, and lead to a dangerous East-West confrontation.

I’ ll stop here and conclude with three recommendations:

1. Don’t stop TTIP negotiations, suspend them and open them up to a coalition of the willing – including China – using open plurilateralism as a pragmatic proxy for multilateralism.

2. Tackle the redistribution issue both in the US and the EU as the missing priority of the economic policy agenda. In the EU, this means a transfer union for the eurozone, corporate tax harmonisation and a drastic strengthening of the EU-28 globalisation adjustment fund. If Europe does not do its homework with regard to internal cohesion, it will soon stop being a global trade player.

3. Remember that geography matters, too. Europe is not just an Atlantic power; it is also a Eurasian one. The best way to strengthen the Atlantic partnership is through common EU defence within NATO, and the best way to play the Eurasian card and to contribute to the stabilisation and prosperity of Russia and Central Asia is to respond to Xi Jingping’s twin offer of a free trade area with China, and a Eurasian infrastructure and Silk Road trade deal. 

* Pierre Defraigne is Executive Director of the Madariaga-College of Europe Foundation.

**First published at Euractiv.com