Understanding TPP and TTIP: The Wheels of Trade Grind Slowly for Lawmakers

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There is a lot of talk in the business press about trade agreements.

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Most of us skip such articles on our way to the sports pages as it’s that impacts on such a macro scale that it is of little relevance to us day to day, but that is to overlook the massive impact trade liberalization has had on our lives over the last twenty years.

Although the low-hanging fruit has already been plucked, further agreements could yet impact, for good and bad, in the years to come. Lawmakers are split on many lines over the issue. Some are intrinsically against liberalization on the basis that it can expose domestic industries to unfair competition from abroad, that by reducing trade barriers, it encourages off shoring and the export of jobs overseas.

What is Trade Liberalization?

Others say trade liberalization raises GDP for all and the rising tide lifts the boats of everyone’s income levels, in developed and developing markets. The experience of the last 20 years can be used to support both arguments and, in reality, both are true to a greater or lesser extent.

Currently considerable argument rages about the President’s two plurilateral (by which we mean between a limited number of partners) trade agreements known as the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP).

Why Only Certain ‘Partners?’

The fact these agreements will be between a limited number of countries is itself a bone of contention. Many argue only multilateral agreements such as the failed Doha negotiations are the way to go because they encourage a universal set of rules and standards, but with the more readily agreed issues resolved further progress is proving increasingly difficult and acrimonious.

The FT did a quick idiot’s guide to the TPP and TTIP summarizing them as follows. The TPP is a negotiation with 11 countries, most importantly Japan. Its partners account for 36% of world output, 11% of population and about one-third of merchandise trade. The TTIP is between the US and the EU, which accounts for 46% of global output and 28% of merchandise trade.

The main partner not included in these negotiations is, of course, China. Import tariffs are only a part, arguably a small part of what these agreements are about. In the FT’s analysis, the agreements are more about making rules more compatible with one another and more transparent for business, particularly around intellectual property rights.

Not a Trade Booster, An IP Defender

They are an effort to shape the rules of international commerce, the FT argues and quotes Pascal Lamy, former director-general of the World Trade Organization, saying that “TPP is mostly, though not only, about classical protection-related market access issues . . . TTIP is mostly, though not only, about . . . .  regulatory convergence.”

The benefits of each to national incomes is small. Even supporters do not claim the level seen in earlier trade agreements. The FT quotes independent analysis suggesting between 0.4% and less than 1% rise in national incomes as a result, with the US-EU TTIP towards the upper end of the range and the US-Asia TPP towards the lower end. The most reliable guess is they will be positive but modest. That will make the President’s job correspondingly harder to get past a skeptical Congress.

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