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New rules of engagement: understanding TPP and TTIP - Daily News Egypt

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New rules of engagement: understanding TPP and TTIP

Since its founding in 1948, the World Trade Organisation (WTO) and its precursor have remained quite tightly targeted on trade and investment. With its particular focus on tariff reductions and trade negotiations, it has served as the pre-eminent glorious knight battling on behalf of consumers. However, all that changed in the past two decades. Success …


Since its founding in 1948, the World Trade Organisation (WTO) and its precursor have remained quite tightly targeted on trade and investment. With its particular focus on tariff reductions and trade negotiations, it has served as the pre-eminent glorious knight battling on behalf of consumers.

However, all that changed in the past two decades. Success attracted allies. The number of WTO members rose from 27 in 1948 to 162 today. Decisions made by the WTO remain consensus-based, which means that all votes have to be unanimous. Pervasive terror threats encouraged politicians to focus on the high-intensity politics of national security and war, as opposed to the low-intensity politics of trade and investment. Progress was also slowed due to shifts in the centre of trade gravity and challenges in current markets by rapidly growing new competitors. The global recession intensified the tendency to ignore international economic issues as attention shifted towards domestic job creation and the protection of domestic credit markets. In consequence, liberalisation has stepped outside of the WTO.  The last two decades brought a ‘do-it-yourself’-approach, defined by mega-regional agreements, and preferential plurilateral trade negotiations tailored for only a limited number of players.

The Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) are key to this development. The TPP is a free trade agreement covering 12 countries from North and South America to the Pacific Rim, while the TTIP represents a free trade agreement between the United States (US) and the European Union (EU). The TPP negotiations concluded in October 2015 after four years of intensive talks. Legislative ratification will be the next step. The TTIP has been under negotiation since June 2013, and hopes for completion by the end of 2016, making use of the transition time for US administrations and congress.

The combined trans-Pacific and transatlantic space covered by these agreements encompasses 60% of the world economy and 22% of its population, according to the International Monetary Fund.

But the economies differ in terms of per capita incomes and living standards. The TPP economies represent 27.3% of world GDP and 10.7% of the world’s population. The TTIP economies represent 33% of world GDP, with 11.2% of the population.

However, there are notable differences in the scope and goals of the agreements themselves. The TPP is focused on opening markets and eliminating tariff barriers on trade and investment. The TTIP mainly concentrates on tackling costly non-tariff barriers and strengthening Foreign Direct Investment (FDI) rules.

Transatlantic average tariffs, at 4%, are much lower than the trans-Pacific ones. The TTIP is much more about investments than free trade, with both parties extensively embedded in each other’s economies. Such a relationship has produced more income, created more jobs, and generated more wealth than trade alone.

The TTIP is more ambitious than the TPP. In addition to the financial and economic benefits, the TTIP will have a larger geostrategic impact, since it reinforces the strong ties that exist between the EU and the US. The TTIP is a natural Western partnership, with mature, well-developed, and consolidated markets, and a strong mutual defence relationship based on the North Atlantic Treaty Organisation (NATO). Both of these components are missing in Asia. However, this might change with a tumultuous reformation of the EU and perceived instability of the region.

Economic realities emphasize the TTIP as well. The transatlantic economies are the innovation powerhouses of the global economy and crucial elements of future growth and balance. The US and the EU are by far the two largest trading blocs in history. Given the size and scope of the transatlantic economy, standards negotiated by both mentioned unions could become a leading benchmark for future global rules and slow down the acceptance of competing standards.

The TTIP and the TPP are strategically interlinked with each other. Both agreements are important in terms of how the various partners, including the pivot of the US, jointly relate to newly rising powers, and whether the west still has the energy and dedication to set new standards for the international economic order. Both, the TTIP and the TPP, take on increasing strategic importance in light of the continuously growing role of China and other emerging markets in the global economy. A simplification of trade and investment relations via the two agreements would also push the WTO to expand its useful life.

The TPP is also important for the EU. Higher growth rates in the trans-Pacific region will help Europe through increased exports. The TPP also reinforces the geopolitical reality of rebalancing Asia.

Achieving progress in the simplification of trade and investment relations is important to global prosperity. The approaches taken by the TPP and the TTIP may well indicate the future of trade negotiations: tightly focused talks between selected participants aiming for improvements in fields of comparative advantage within a clearly defined time frame.

Michael Czinkota works at Georgetown University and is a former deputy assistant secretary of commerce in the United States department of commerce. His key test is International Marketing, 10th ed. Cengage  

Valbona Zeneli is a professor at the George C. Marshall European Centre for Security Studies. The views presented are those of the author(s) and do not necessarily represent views and opinions of the Department of Defence or the George C. Marshall European Centre for Security Studies. 

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