The TTIP Trade Crusade
Europe and America are negotiating a landmark free trade agreement. However, there is more than trade therein. The benefits would be immense – but not for all, and many will lose
Officially, a free trade agreement between the European Union and the United States is being negotiated since the summer of 2013. A third round of talks took place in Washington at the end of December, and Brussels will host the next meeting in March (though talks were partly suspended for three months). The negotiating process is designed as a free flow: the hot topics are put aside for a later revisiting since the two biggest planetary economic powers try not to clash interests directly. Hundreds of bureaucrats and experts, in 24 two-side commissions, discuss themes like abolishment of tariffs, mutual recognition of standards, common technical rules for examination of goods, and investment protection. The architecture of this agreement is already taking shape.
The free trade movement, which dates back to the beginning of 1970s, would find vast new horizons if the intended Transatlantic Trade and Investment Partnership (TTIP) is agreed. But real life is more than trade. The gross domestic product did increase with the global trade liberalization during the last few decades, but the price was environmental destruction, dozens of failed states, stifled national industries, loss of identity, deepening of the gap between rich and poor. The trade alliance of the rich raises questions, fears, and already a considerable opposition.
The promises of TTIP are truly lucrative and the inherent risks do not dissuade the politicians. Economists estimate the benefits of a trade agreement between EU and USA in hundreds of billions. Journalists’ fantasy has yet to deliver on the „hedge against emerging world” counterbalancing China and weakening Russia. The entry into force of TTIP is planned for 2017. To that date the politicians on both sides of the Atlantic would surely solve their controversies, but what about the democracy?
Free trade and its enemies
An abolishment of tariffs between the EU and the USA could save the chemical industry 1.7 billion euro annually. The huge bill is due to the apparently insignificant 1.2 percent American and 2.3 percent European tariff for chemical goods. Joseph Francois at the Centre for Economic Policy Research calculated that in 2027 European companies will profit 25 bn. euro and American ones another 10 bn. euro if customs duties would be abandoned. But the big gains come from a “far reaching agreement” that includes not only tariffs but also services, standards, investment regimes. According to CEPR it will enrich Europe with 119 bn. and America with roughly 95 bn. euro, in due time.
An immense amount of money, but this lump sum is rather imaginary. Actually, this is an evaluation of the benefits that will apparently materialize after 15 years, in case the two sophisticated negotiating teams come to terms about something, which they themselves do not yet know what it will be. And provided that the world does not collapse in the meantime. The CEPR study, however, does not account for costs and risks associated with TTIP, a fact that is suspicious enough. This London think-thank is a notorious supporter of the deregulation cause and its conclusions, prepared for the needs of DG Trade of the European Commission are therefore not unbiased.
Transatlantic partnership will save companies a lot of money. One could accept that it is a needed move in the global politics. But the powers behind the trade negotiations – political, ideological, and business, are throwing around too much pink dust. For instance, the loss of custom revenues in the national budgets is not a subject of comment – while fiscal deficits are still declared to be the fiercest macroeconomic woe. No doubt, TTIP will increase the trade flow, thus transport and logistics industries will gain stimulus, but this goes hand in hand with increased energy consumption and carbon emissions. To insist the opposite is to conceal the truth.
The global free trade puts local producers under constant price stress. Instead of access to bigger markets, with TTIP small European and American firms will face more competition. Forced to lower prices up to the point of complete dullness, they lose every investment possibility and gradually fall away from the market, freeing space for the big ones. In this way the free trade, namely some very peculiar contemporary meanings of the word “freedom”, limit the market chances of the small and independent ones.
Despite this, the European Commission holds as its highest duty to seek for free trade agreements all over the world: “to create new market opportunities for the European business”. The hopes are for 2.2 million new jobs, and the GDP of the union to increase in that way by 275 billion. A success with Canada was followed by a failure in Ukraine; Brussels holds talks simultaneously with China, Japan, ASEAN countries etc. But the free trade agreement with the United States is a different undertaking. The two powers account for nearly half of world GDP. Each party has invested in its transatlantic peer more than 1200 billion euro.
The mass media often do not make difference between anti-globalization and extremism, but the International Labor Organization declared a critical stance on globalization ten years ago. While trade liberalism was conquering the world between 1985 and 2000, just 16 developing countries achieved economic growth of more than 3 percent. In the same time 55 countries posted slow or negative growth. The globalization brings opportunities, but not for all. A profound change in the world view of globalism is needed. To see the world just through the business lens, to fully prioritize the economic arguments, is harmful and intolerable. „There is no point to a globalization that reduces the price of the child’s shoes, but costs the father his work”, declared the ILO.
The seducer of Europe
An absent-minded businessman, who crosses the Atlantic for the first time, will be unpleasantly surprised: the sockets in Europe and America are different standards and in order to plug his computer in, he needs a special converter. In some places in the US these simple appliances cost up to 25 dollars.
TTIP does not intend to equalize plugs and sockets, but surely there is a space for trade optimization. USA chief negotiator Dan Mullaney states that both economic blocks have the same level of consumer protection but the ways this protection is achieved are often completely different. If America and Europe would mutually recognize their product standards, the companies’ costs would go down sharply. It is stated that up to 80 per cent of the benefits of TTIP would consist of removal of documentation and red tape.
Whole industries will breathe freely if they don’t have to prove the same thing twice, for the sake of both EU and US authorities. The stakes are highest in the machine industry, the automotive sector, and for the chemicals. Corporations with international supply chains have an additional interest: a considerable share of the world trade of goods is carried out among the same companies, though a tariff still has to be paid for these international intra-firm movements. For example, if a European producer delivers a part for his assembling factory in the USA and the end product is to be sold again in the EU, the company is disadvantaged because of its international structure.
There is an obvious benefit in the equalization of standards and regulations, but the objections that the “far-reaching” agreement could go a bit too far sound also reasonably. The consumer markets in the USA and EU are equally mature but they have very different attitudes. Just to take the “new food”: while American corporations lobby against the obligatory GMO labeling, Europe preferred to pay the USA for many years 117 million dollars annually, but ban the import of beef injected with growth hormones. Even more vocal is the European opposition against GMO. There is a different approach also regarding energy: what is further from the shale revolution than the Energiewende in Germany? And the most outstanding contradiction is private data protection, especially in the light of the American spying obsession.
Ignacio Garcia Bercero, the European chief negotiator, declared that there will be no compromise with European regulations. There will be no American GMO flooding clean Europe, and private data will be granted privacy. The Portugese recognizes that the negotiations are tough and demanding, but both sides are interested in their completion. Meanwhile the politicians have learned their lesson from the bitter protests against the ACTA agreement and now they try to navigate between citizens’ urge for more transparency (DG Trade now tries “to manage the transparency”) and the low profile, needed for the accomplishment of every business talk.
The Bulgarian narrow interest
The Commission’s trade experts are picky in citing economic analyses. There would be no losers with TTIP – of course, excluding the poor. The inner pages of the CEPR report called „Reducing Transatlantic Barriers to Trade and Investment” reveal that just the tariff abolishment will deprive the rest of the world of 8 bn. euro annual income. On the losing side stand India, the Mediterranean, Eastern Europe. Other research conducted by the German Ifo institute concludes that almost all other countries will lose: the Australian GDP will come down by 7.4 percent; Japanese by 5.9, African countries will be punished with 2.5-4 percent slowdown, Russia with 2.1 percent etc. But the USA and the European countries will gain respectively 13 and 5-10 percent growth.
Why not, if our country is among the winners? Ifo promises almost 5% increase of the national GDP, therefore Bulgarian interest in TTIP is evaluated at around 2 bn. euro annually. But the economists are used to overestimating the benefits and to underestimating the costs of international free trade. Even the Brussels experts acknowledge that the partnership with the USA bears threats for the textile industry. The tariffs on American textile imports amount to 40 percent: without them the competition will increase and many jobs will be lost. Around 120 thousand people in Bulgaria work in the textile and clothing industry. They are low paid, but in regions with high unemployment they have no alternative. TTIP will cost them their bread.
The free trade with agrarian goods hides three main risks for Bulgaria. First, Bulgaria still has a high level of genetic diversity. Every compromise with American GMO imports could destroy an infant industry of organic foods with considerable opportunities. Second, due to 15 percent duty on foods and still higher non-tariff barriers, the USA food imports are not profitable, for now. Bulgarian producers will have to take a hard blow if these barriers fall. Third, the liberalization will gradually lead to abandonment of agricultural subsidies and the Common Agricultural Policy could die away in some years, before the newcomers in the EU feel its benefits.
The TTIP accentuates on investment protection. During the privatization rush disadvantageous energy contracts were signed with some American companies, which contracts Bulgaria still covets to break somehow – and with TTIP they will last forever. After the free trade agreement with Canada, the same is true for the Canadian gold prospects in Bulgaria: among the biggest in Europe, but unprofitable for the host nation and also environmentally destructive. More broadly, history teaches that trade globalization benefits the developed but damages the periphery. The European centers will gain prosperity and ports like Rotterdam, Hamburg or Antwerp will flower thanks to increased trade flows, but many people in the disadvantaged regions will lose their means of living.
The voice of the small is sometimes the loudest, but Bulgarian international policy hasn’t earned that. We will simply be observers in the negotiations between Europe and the United States. We could rather defend narrow Bulgarian interests in Brussels. Bulgaria has to insist on compensation: a fund or mechanism that will channel a part of the income obtained thanks to the TTIP. But how different is the early reaction of the Bulgarian politics. “We support the spirit and the goals of a transatlantic agreement and wish it to be realized more quickly”, declared Bulgarian president Rossen Plevneliev. The Vice Premier Daniela Bobeva chimed in: „Bulgaria will gain from abolishment of tariffs”.
Although not the cause for the world crisis of 2007, the fall of the Iron Curtain in 1989 was an influential contributing factor for it. Then the Western companies saw immense, virgin markets in Eastern Europe and Central Asia, and the privatization of extended state assets found application for funds that otherwise should have to go smart in the overcrowded capitalist world. A number of influential sources state that the fall of the totalitarian regimes beside USSR postponed with some 15 years the big postwar crisis of the West – that is why it came out at last really huge.
The politicians in Brussels and Washington now try to repeat the same process. They have understood that even the bravest monetary policies cannot solve the problem with the missing jobs. The crisis stroke the Western system in its heart: indulged in consumption and financial services, forgotten to produce. Both blocks of super-rich obviously choose the way of extensive growth, hoping to add a couple of percents to their GDP through purely geographic market expansion, the next in line.
A trade and economic agreement between EU and USA will not solve, but just put away the problems which lead to the recent crisis – and they will return sorer. But no one thinks in so long run. The real imperative is the diminishing dominance of the EU and the USA in the world. So the Transatlantic partnership is expected to act as a new, economic NATO. European trade commissioner Carel De Gucht forewarned against rising criticism from the NGO’s. More important were new markets, lower product prices, and quicker access from the laboratory to the store.
But the opponents of TTIP are yet to have their say. The main public objection will be the ISDS (Investor-to-State Dispute) mechanism. With ISDS the investor could claim an “indirect expropriation” and seek compensation if some government regulation has hurt its profits or interests. Thanks to the ISDS clause now Philip Morris sues Australia, which recently adopted plain packaging for the cigarettes. The Swedish company Vattenfall sues Germany for exiting the nuclear energy. The global corporations try to tie the hands of the governments and to legitimize their economic rent for eternity. In such cases politicians try to go as far as possible and put the public before accomplished fact. This approach did not work with ACTA. The Multilateral investment agreement, silently negotiated in 1996, also failed.
Independent thinkers in America are embarrassed with the TTIP in the same way as the Europeans. The activist organization Eyes on Trade insists that a transatlantic partnership will harm the interests of USA citizens. The European “discipline” is offered as a substitute for closer regulation in the financial sector, thus the destructive Wall Street party will continue with European help. European standards for milk, toys, medicines etc. are regarded as not tough enough. The opponents of free trade with Europe remind that BP, responsible for the great oil spill in the Gulf of Mexico, lobbies against new clean fuels. TTIP is a kind of New Deal for Big Business on both sides of the ocean, and in the end the people will have to pay the bill.
People are exactly what European and American politicians prefer to forget about while measuring the free trade benefits. According to Canadian author John Ralston Saul, there simply lacks public debate about the economic and social dimensions of globalization: it seems that the movement of goods across borders turned out to be the aim of the modern civilization. John Maynard Keynes has identified the nature of the disease long ago: now we are suffering not while we are poor, on the contrary, but while we sacrificed to the Moloch and Mammon our values – and sacrificed them unnecessarily. We readily will ruin the tillers of the soil and destroy the beauty of countryside, if thus we get a loaf of bread a tenth of a penny cheaper.