TPP and TTIP From a Geopolitical Point of View

Leaders_of_TPP_member_states  Let us realize the unique opportunity to define the global gold standard for trade

(By Philipp Klaus, Member of the Initiative junger Transatlantiker / Young Transatlantic Initiative) – The Asia-Pacific TPP agreement is in the endgame to reflect the most ambitious legal trade platform for global economic growth and free cross-border flows of capital, people, goods and services. Yet, during the recent negotiations on Hawaii the eleven participating nations could not agree on certain provisions and a joint approach to finalize contracts. This article elaborates on the strategic rationale behind the Asia-Pacific agreement, points out the distinct role which China plays and outlines the implications the TPP has on the TTIP currently under negotiation.

While the exact details are complex and hard to depict for outsiders, pharmaceuticals have been a major point of disagreement during the talks. Participants called it frustrating to debate the question how long to protect and grant exclusivity for data being used for drug development. While the U.S. aim for more than ten years, Australia only wants to incorporate five years as a time horizon. This example already nicely outlines the diverse set of interest groups involved – each of which aims to include as many benefits for its own economy as possible – thus forgetting about the mutual character of trade negotiations. A strategy often pursued is to define distinct aspects as red-line issues, thus basically removing any zone for possible agreement immediately. The winner, both from stalled negotiations regarding TPP as well as public hesitation to pursue a comprehensive TTIP, is the world’s biggest exporter China. We should be aware of the importance to complete a strong and deep TTIP between the U.S. and Europe – if not we risk to let others determine the rules of international trade. In a time in which China seeks to strengthen its global political role and evolves from a mere economic powerhouse to diplomatic leadership, U.S.-European ties and cooperation are more vital than ever before. The time schedule is tough – TPP negotiations will continue throughout the year in different formats and multilateral talks. This will increase the pressure on the EU to shift the American focus from the trans-pacific agreement to its Atlantic counterpart.

Let us take a short detour. In 2009, the Obama administration announced the plan to participate in a trade treaty which faces and focuses on the topics global trade will deal with throughout the 21st century. During the initial talks in 2005, only four countries (Brunei, Chile, New Zealand and Singapore) were involved. Yet, over time economic powerhouses joined (Australia, Malaysia, U.S.) or have expressed strong interest (Mexico, Japan, Canada) as the benefits appeared superior compared to protectionist policies and safeguarding domestic service businesses and manufacturers. The envisaged region entails 40% of global GDP and already now the TPP countries, defined comprehensively as a group, constitute the largest export market for U.S. manufactured products and services. Goods exports alone totaled $698 billion which translates into 44% of total U.S. manufactured goods exports. Taking into account the wide range of topics, negotiations are complex and multi-faceted. Yet, five key features have been identified as pillars for the TPP which will update previous free trade agreements (FTA) and is designed as a single holistic attempt to incorporate and address comprehensive market access, laws on cross-cutting trade issues and newly emerging trade challenges. Legal coherence, business opportunity, developmental policy, competitiveness and rules for small- and medium sized enterprises (SMEs) are intended as means to promote economic integration, eliminate tariffs and duties, create jobs and improve overall welfare. Also, sectoral and conceptual focus areas have been identified. These include, among others, e-commerce, financial services regulation, environment, labor, telecommunications, procurement, market-opening packages, intellectual property, competition and property. One might argue these targets appear too optimistic but, especially related to SMEs which constitute a major share of U.S. economic output, trade facilitation will improve the business operations overseas and thus allow American firms to respond appropriately to the threat of labor-cheap countries in South-East Asia challenging U.S. and Canadian competitiveness.

The EU and U.S. constitute, as compared to the diverse set of countries involved in TPP, a relatively coherent set of negotiation partners. The latter reach from states still silently accepting slavery practices, for instance Malaysia, over the resource-rich U.S. ally Canada to the world’s third largest economy Japan, financial center Singapore as well as Brunei which experienced tremendous growth following its independence from the UK in 1984. As diverse as the economies of the participating nations, so are the interests and intentions. Yet, we should not forget that trade agreements, at their very core, should entail mutual benefits and business facilitation – pushing through ones’ own aims to the extreme is contra-productive and involves the risk of losing the sense for the big picture when discussing minor issues too extensively. Back to China: As the country intends to pursue a regional economic integration strategy which focuses on neighboring economies rather than wider-spreading treaties in terms of geographic proximity, it regards efforts towards finalizing the TPP critically. Chinese scholars interpret it as a strategic U.S. attempt to interfere with Chinese regional collaboration and thus to become the dominant power – economic and security-wise – in East-Asia. Also, accusations regard the treaty as a tool to contain, limit and even hamper Chinese growth. Especially in the aftermath of the minor Chinese stock market crash and slowed growth prospects, conflicts related to trade and expanding business operations by the mean of multilateral contracts could grow. Therefore, leading Chinese scholars demand an active counter-balance to the TPP agenda. This conflict emphasizes the wide-reaching geopolitical implications of trade beyond common rules and standard procedures to facilitate and enhance business relationships for companies among cultures, legal systems and corporate regulatory frameworks.

We should regard the TTIP as a major opportunity to define the global gold standard for trade in a wide variety of areas in order to strengthen exports and reduce both business-harming custom duties and trade tariffs. Also, it is crucial to determine strong rule-based mechanisms and procedures to create transparency and planning security for investors, corporations and citizens. Especially the often-cited investor-state dispute settlement courts should be designed carefully in order to create a deep legislative system accepted by all participants. Whereas critics often argue that the treaty weakens legal rules and creates a grey zone for large corporations, rather the opposite is true: Comprehensive law enforcement and a strong jurisdiction constitute key pillars of TTIP. Moreover, the logic that free trade and multilateral contracts improve legal security for people and SMEs rather than diluting domestic standards and granting MNEs dominance over entire states is often misunderstood.

Yet, our competitors for trade standards in the Asia-Pacific region do not wait for U.S.-European negotiations to be completed but pursue efforts to accomplish a wide-reaching agreement which is, as compared to the TTIP, already in the final stage to be signed. Stalled negotiations only allow us to take a short breath and fully concentrate on finalizing the transatlantic trade and investment partnership. Still, we possess the opportunity to come first and thus strengthen our ties to the U.S. If the EU achieves to complete the TTIP it will prohibit a shift of economic and trade-regulatory power to the Asia-Pacific region. Facing a rising China that aims to extend its influence from mere economic strength to holistic exercise of political power and an India which overcomes its bureaucratic administration by the mean of several regulations initiated by the new Prime Minister Narendra Modi, the TTIP could constitute a vital economic instrument to demonstrate and execute both unity and determination. It then functions as a catalysator and glue not only for businesses on both sides of the Atlantic but social, environmental and cultural collaboration and exchange, too. Undoubtedly, promoting the TTIP is not always easy. Negotiating bilateral contracts involves both succeeding on some claims while giving away others. Also, agreeing on deep and comprehensive free trade agreements is a long and complex process. Stalled talks and disagreement about certain provisions at one point of time do not imply the breakdown of the entire process – rather they point out the seriousness and commitment of the participating nations in creating a holistic and rule-based global trade standard. The TPP nicely shows the difficulties for individual countries to overcome long-enduring economic policies. For instance, the opening of the Japanese agriculture as well as restructuring the government procurement market in the U.S. are tantamount to a revolution. Yet, if we don’t create and design international trade rules, others will do so for sure – and the outcomes and regulations will not be in the interests of European and German citizens, consumers and SMEs. Let’s pull ourselves together and realize the opportunity for TTIP.