Abstract: TAFTA | TTIP negotiations are taking place in the context of what could be a new era of free trade. Both the EU and the US have bolstered their efforts to conclude bilateral free trade agreements all over the world in the last years. Simultaneously however, the EU and the US have sometimes experienced discord, with US-politicians increasingly turning their attention towards the Asia Pacific region and Europeans being seemingly preoccupied with themselves. Atlanticists have perceived this as a weakening of the transatlantic relationship, a critique which has sometimes been made with regards to European integration more generally. To be sure: a politically stable and economically dynamic Europe has always been in the interest of US international politics. Nonetheless European integration has sometimes been described as contrary but not complementary to the ideals of Atlanticists. The euro was notably set up as an alternative leading currency. With TAFTA | TTIP, trade would be diverted from the intra-European area towards more EU-US trade, thus weakening the relative importance of trade within the common market. We argue that TAFTA | TTIP is a project which would lead to a relative decline of traditional European integration to the benefit of transatlantic integration.
Introduction: A New Era of Free Trade
TAFTA | TTIP negotiations are taking place in the context of what could be a new era of free trade. With the multilateral Doha Development Round being manifestly stuck, both the EU and the US have recently bolstered their efforts to conclude bilateral free trade agreements all over the world (Dadush 2013). These attempts are currently culminating in the project of a Transatlantic Trade and Investment Partnership (TTIP).
This project can be traced back to a series of agreements in the 1990s that lost some impetus in the meantime (Siebert 2013). The idea was reinvigorated when Germany took over the EU-presidency in 2007. German Chancellor Angela Merkel seized the opportunity to revive the transatlantic project by setting up the Transatlantic Economic Council (TEC) (Techau 2013). Its members are both government agencies, such as the US Chamber of Commerce, and private pressure groups, such as Businesseurope and the Bertelsmann Foundation. The TEC has been doing the preliminary work for the joint High Level Working Group (HLWG), which ultimately laid the foundations for the current negotiations (European Commission 2013b, 5; US Department of State, 2013).
In this essay we argue that the TAFTA | TTIP may turn out to be against the interest of European integration. This is not because Atlanticism and European integration are necessarily contradictory, but because the predicted outcomes of this particular project will lessen the importance of intra-European trade. However intra-European trade has increasingly become the ‘raison-d’être’ of European integration, which is consequently under threat.
Discord: Is European integration harmful to EU-US relations?
Since the end of the Cold War, the relationship between the EU and the US is in a “period of fundamental reorientation” (Varwick 2008, 520). The US is still the world’s strongest individual economic, political and military actor, but economically this position is challenged by the EU. Also, politically, the EU could, if it was acting as one, stand up to the US.
European Atlanticists have perceived the US’ move for a Trans-Pacific Partnership (TPP) as a weakening of the transatlantic relationship (Frankenberger 2012; Parello-Plesner 2013). The same criticism has sometimes been made with regards to European integration, which was sometimes described as contrary, but not complementary, to the ideals of Atlanticists. To be sure: a politically stable and economically dynamic Europe has always been in the interest of US international politics. This is why the US supported European integration right from its beginning. While some have seen the Marshall Plan as a means of “dollar imperialism” (Mittag, 2012: 65), creating markets for the surplus production of US industries, the fact that the beneficiaries were required by the US to cooperate in terms of economic policies in order to qualify for Marshall funds, also strengthened political ties between Western European states (Mittag 2010, 64ff).
However, the following steps of European integration, such as the European Economic Community (EEC), were not necessarily in favor of transatlantic trade, as they put more incentives to intra-European trade than to third country trade. It was nonetheless accepted by the US because they rightly assumed that a political order in (Western) Europe, which was oriented on political cooperation and cross-border trade, was strategically in their interest. It should also be noted that since the Maastricht Treaty of 1992 it has always been an explicit aim of European integration not just to tear down economic frontiers within the EU, but also between the EU and third countries (Abelshauser 2011, 273).
Finally, the euro was set up as an alternative leading currency and somewhat of a counter project to the US dollar (IMF 2006, 3ff.). Yet the US dollar continues to dominate foreign exchange markets and remains largely unchallenged as a “currency for borrowers [who require] foreign currency financing” (Goldberg 2010, 5).
In the last two decades the EU has tried to establish itself as an independent and autonomous global actor. It initiated its own free trade agreements, independently of WTO negotiations. Agreements with South Africa, Mexico and South Korea were already concluded, agreements with several Latin American states, Japan, India, and – of course – the US are to come (European Commission, 2013a). The US is doing the same with Asian states among others (Siebert 2013, 14).
The negotiations between the US and Asian states led some observers to believe that the US under Barack Obama had ‘pivoted’ away from Europe and towards Asia (Marschall 2013; Kupchan 2013). Indeed, the Obama administration is anxious to “deepen its engagement in Asia” (Kupchan 2013), but it would be wrong to think that the US does not have any other interests. The ‘Pivot to Asia’ in 2011 has possibly been misinterpreted by oversensitive Atlanticists and pessimistic Europeans who were stuck in a deep Euro recession (Marschall 2013). By now, the Obama administration has reassured Europeans that they are a ‘first choice’ partner (Joe Biden, in: ibid.; Kupchan 2013).
What’s at Stake for Atlanticists?
The European Commission’s Promises
With regards to the aims of TAFTA | TTIP the European Commission is fully supporting Atlanticists and the transatlantic project. It claims that the Partnership would be a budget-neutral measure, favoring economic growth and social gains (European Commission 2013b, 15), provided that the negotiating parties reach a “comprehensive agreement” which extends to sensitive areas and includes “liberalizing trade in services and public procurement” (CEPR, 2013, vii). A central argument of the Commission is that TAFTA | TTIP would “raise the welfare of both parties through lower consumer prices and higher national income” (European Commission 2013b, 50). Similar suggestions were made in a study of the Bertelsmann Foundation, which is a member of the Transatlantic Economic Council (Bertelsmann 2013, 21).
In June 2013 many journalists were proud to announce TAFTA | TTIP as a “turning point” (Marschall 2013). Supposedly, the mere perspective of TAFTA | TTIP would bring back to life the transatlantic relationship and bring trust and confidence to Europeans. Indeed, with the Asian economic boom being a number one topic in the media, some in the West may have forgotten that the most important trade bloc in the world still is the North Atlantic-bloc. TAFTA | TTIP would also slow down the relative decline of western political power in the world (Kupchan 2013; Marschall 2013). The following paragraphs will explain why that would be the case.
For some observers TAFTA | TTIP is even more than just trade; it is also about geopolitics. Therefore, it should induce political spillover, thus “[re-invigorating] the Western political partnership and civilization” (Techau 2013) – or at least what Atlanticists like to see as Western civilization. This notion of ‘civilization’ applies in particular to the primacy of deregulated trade, private investments and property rights over social rights and state intervention. If, from an Atlanticist’s perspective, European integration has sometimes taken a turn to statism, then a closer trans-Atlantic trade regime would serve “as a lever for the completion of the EU’s single market” (ibid.) in the spirit of radically deregulated capitalism (Rodrik 2012, 76, 184ff.).
Furthermore, “by using the combined leverage of their consumer markets”, the US and the EU could “ensure that producers worldwide continue to gravitate toward their joint standards”, making TAFTA | TTIP a ‘global regulatory blueprint’ or ‘gold standard’ for future trade deals all over the world (Bollyky 2013; Dadush 2013; Techau 2013). Hence transatlantic trade would also “trigger a new wave of […] bilateral trade agreements by countries trying to avoid exclusion” (Dadush 2013). The Bertelsmann study has also suggested that the risk of losing on trade with the TAFTA | TTIP region would motivate third countries to adopt TAFTA | TTIP-standards in order to stay in the competition (Bertelsmann 2013, 29, 40; Siebert 2013, 18).
A point that has been made very often by authors sympathizing with the partnership is that this could possibly be the last chance. If TAFTA | TTIP were to be concluded in the years to come, the US and the EU might still have enough influence to set “global standards” (Bollyky 2013), either before other regions in the world attain too much global importance (Kupchan 2013; Marschall 2013) or before Atlanticists lose their political influence (Varwick 2008, 523; Frankenberger 2012).
The argument that TAFTA | TTIP could become a ‘blue print’ applies even more from a US-perspective, since it is actually “pursuing two giant regional deals” (Dadush 2013) at the same time: a partnership with the EU and one with the Pacific region (TPP). All together TPP and TAFTA | TTIP “would comprise 60% of world trade” (Dadush 2013). This has some resemblance with the former General Agreement on Tariffs and Trade (GATT) Rounds, which used to be led by the US. Consequently, TAFTA | TTIP might “help [the US] to reassert its leadership in economic relations” (Dadush 2013).
TAFTA as a Threat to European Integration
Does TAFTA | TTIP threaten European Standards?
In order to profit from liberalization, economies need to be competitive by neoliberal standards. Therefore currently ‘hypercompetitive Germany’ may be ‘enthusiastic’ about the deal, but this does not necessarily apply to other European countries, since some of them may have to make far reaching concessions (Dadush 2013). But is it acceptable to give up sanitary or working condition-standards just to achieve an idealistic goal (Stiglitz 2013)? Trade representatives who represent corporate interests on both sides of the Atlantic “will almost surely push for the lowest common standard, leveling downward rather than upward”, warns Joseph Stiglitz (2013).
What one should bear in mind is that regulatory provisions are often far from being a “problem driver”, as the Commission is insinuating (European Commission 2013, 17). On the contrary: take the example of the automotive industry, which is not simply regulated by Europeans in order to “discriminate” US manufacturers, but in order to promote energy efficiency (Stiglitz 2013). The financial sector is another example, where TAFTA | TTIP will hinder any attempt to implement the regulation necessary to avoid a new crisis, as the planned agreement is pushing for deregulation in financial services (European Commission 2013c, 2).
Notwithstanding, the most crucial point is that the trade diversion created by TAFTA | TTIP will weaken the relative importance of intra-European trade. The Bertelsmann Stiftung (2013) has published numbers which, though they are to be used with some reserve, show disconcerting results. On the plus side, trade between the US and Germany – for example – could increase by 90% in a “comprehensive liberalization” scenario (ibid., 14). Trade with the UK could increase by about 60% (ibid., 18). However, this is not pure trade creation, in the sense of additional trade being ‘created’. Instead the study suggests that new trade relations would only come into place at the expense of currently existing trade. For example goods from the US would replace EU-imports on the German market (ibid., 15). Economists call this phenomenon ‘trade diversion’. While trade between individual European countries and the US would increase, trade within the EU would sharply decline just as trade between the EU and many third countries (e.g., BRICS and Maghreb) would (ibid., 16f).
As a result, European integration, which heavily relies on trade relations, would become noticeably weaker. It would particularly lose much of its value for the UK. Even for Germany ties would become weaker, as German trade would decrease by 23% with its traditional partner France and by 30% on average with southern Euro-countries. Under these circumstances countries such as Germany could be led to align their economic policy more with the US than with the euro zone. This in turn would constitute a further backlash for European integration. On the other side of the Atlantic, trade between the US and its partners in the North American Free Trade Agreement (NAFTA) would decline as well (ibid., 14ff).
If the objectives of TAFTA | TTIP, as they have been announced, were fully implemented, the result would be nothing less than a transatlantic “mini-single market project” (Siebert 2013, 2). Some economists doubt that TAFTA | TTIP can actually have a significant positive impact (ibid., 10).
With TAFTA | TTIP, trade would be diverted from the intra-European area towards more EU-US trade, which is subjected to lower regulation. European integration would become less attractive, this accounting in particular for the member states that are currently economically strong. These states would have fewer interests in preserving the integrity of the EU. In a worst case scenario, Germany would end up aligning its economic policy more with the US than with the euro zone. Ultimately, without strong economic integration, a main reason for the continued existence of the EU vanishes.
Abelshauser, Werner (2011): Deutsche Wirtschaftsgeschichte. Second, revised edition, Bonn: Bundeszentrale für politische Bildung.
Bertelsmann Stiftung (2013): Who Benefits from a Free Trade Deal? Available online: http://www.bertelsmann-stiftung.de/cps/rde/xbcr/SID-7AB2168A-989F783B/bst_engl/xcms_bst_dms_38061_38062_2.pdf
Bolliky, Thomas Anu Bradford (2013): Getting to Yes on Transatlantic Trade, Foreign Affairs, 10 July 2013. Available online: http://www.cfr.org/trade/getting-yes-transatlantic-trade/p31077
CEPR – Centre for Economic Policy Research (2013): Reducing Transatlantic Barriers to Trade and Investment, Final Project Report, March 2013. Available online: http://trade.ec.europa.eu/doclib/html/150737.htm
Dadush, Uri (2013): Cold Water for Hot Trade Deals, National Interest, Op-Ed 13 May 2013. Available online: http://carnegieendowment.org/2013/05/13/cold-water-for-hot-trade-deals/g39c
European Commission (2013a): Free Trade Agreements. Available online: http://ec.europa.eu/enterprise/policies/international/facilitating-trade/free-trade/index_en.htm
European Commission (2013b): Impact Assessment Report on the Future of EU-US trade Relations. Available online: http://trade.ec.europa.eu/doclib/html/150759.htm
European Commission (2013c): Trade Cross-cutting Disciplines and Institutional Provisions, Initial EU Position Paper. Available online: http://trade.ec.europa.eu/doclib/docs/2013/july/tradoc_151622.pdf
Frankenberger, Klaus-Dieter (2012): Gemeinschaft über dem Atlantik, Frankfurter Allgemeine Zeitung, 17.11.2012.
Goldberg, Linda (2010): Is the International Role of the Dollar Changing?, in: Current Issues, Federal Reserve Bank of New York. vol. 16(1), January 2010. Available online: http://www.newyorkfed.org/research/current_issues/ci16-1.pdf
IMF – International Monetary Fond (2006): The Euro’s Challenge to the Dollar, IMF-Working Paper, June 2006, WP/06/153. Available online: http://www.imf.org/external/pubs/ft/wp/2006/wp06153.pdf
Kupchan, Charles / Dassù, Marta (2013): Pivot to a Trans-Atlantic Market, 13 June 2013, New York Times. Available online: http://www.cfr.org/trade/pivot-trans-atlantic-market/p30929
Mittag, Jürgen (2010): Kleine Geschichte der Europäischen Union, Münster: Aschendorff Verlag.
Office of the United States Trade Representative (2013): Trans-Pacific Partnership (TPP). Available online: http://www.ustr.gov/tpp
Parello-Plesner, Jonas (2013): What is Europe’s Role in Asia-Pacific?, European Council on Foreign Relations. Available online: http://ecfr.eu/content/entry/commentary_what_is_europes_role_in_asia_pacific
van der Pijl, Kees (1996): Vordenker der Weltpolitik – Einführung in die internationale Politik aus ideengeschichtlicher Perspektive, Opladen: Lese und Budrich.
Rodrik, Dani (2012): The Globalization Paradox: Democracy and the Future of the World Economy, New York and London: W. W. Norten & Company.
Siebert, Horst (2013): TAFTA – a Dead Horse or an Attractive Open Club?, Kiel Working Papers, no. 1240, Leibniz Information Centre for Economics.
Stiglitz, Joseph (2013): The Free-Trade Charade, Project Syndicate. Available online: http://www.project-syndicate.org/commentary/transatlantic-and-transpacific-free-trade-trouble-by-joseph-e–stiglitz#D1pdcJYgS3tx1i3Z.01
Techau, Jan (2013): The Geopolitics of TAFTA, Carnegie Europe. Available online: http://carnegieeurope.eu/strategiceurope/?fa=50773
US Department of State (2013): Stakeholders and Advisors of the Transatlantic Economic Council. Avialable online: http://www.state.gov/p/eur/rt/eu/tec/c33632.htm
Varwick, Johannes (2008): Transatlantische Beziehungen, in: Woyke, Wichard (ed.): Handwörterbuch Internationale Politik, Bonn: Bundeszentrale für politische Bildung, pp. 520-528.