How protectionist will the upcoming EU-US trade agreement be?

How protectionist will the upcoming EU-US trade agreement be?
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Will the upcoming EU-US trade agreement follow a protectionist path, or will liberalizing forces push for greater concessions from the pact’s members.

“Everything is on the table, […] we should be ambitious”, emphasized Ron Kirk, the United States trade representative about the launch of the formal negotiations on the US-EU trade agreement project last February – the Transatlantic Trade and Investment Partnership (TTIP). In November 2011 the world’s largest economies had established the US-EU High Level working group. Its work is now complete, and the formal talks promise to be long and complex.

Free Trade Areas

Regionalism is here to stay: The negotiations on the US-EU FTA will strengthen regional cooperation, but create a trade trench war with emerging economies.

While multilateral negotiations are at a standstill at Doha, regionalism has been the favored way of deepening trading relationships. Its proponents put forward the optimistic arguments of sequential bargaining: as it is impossible to achieve agreements at a global level, a step-by-step approach fills in for negotiations that touch upon contentious issues. The hope is that at that down the road, whole regions achieve comprehensive consensus to liberalize, harmonize and standardize.

The case of the US and the EU is a peculiar one. The average reciprocal import tariffs are low. Services liberalization, investment promotion and harmonization of regulation and standards – such as sanitary and phyto-sanitary measures (SPS) or technical barriers to trade (TBT) – are of much greater importance. Another admitted objective of the agreement is mostly diplomatic: the two entities should cooperate “for the development of rules and principles on global issues of common concern and for the achievement of shared economic goals relating to third countries”. Asking whose rules and whose principles sounds much like a rhetorical question.

Regionalism promotes cooperation at the global level when it harmonizes dissonant positions within regions – when it promotes consensus building more so than coalition building. When the interests of the parties are already aligned, the effect will be to harden stances with respect to third parties. Regionalism then acts as a stumbling block for multilateral efforts. Should the shift of negotiation toward similarity-based partnerships – the Canada-EU Comprehensive Economic and Trade Agreement (CETA) also fits in this category – be feared?

On the one hand, harmonizing regulation and standards will allow the transatlantic block to speak with one language in a number of issues, and it will bolster their position in global norm setting. They are also the areas that will likely realize the fastest progress and the ones that will build coalitions rather than build consensus at the global level.

On the other hand, the development of a mutual position with respect to third countries has very little potential to build consensus regionally – it already exists. Issue areas such as labor rights, state-owned enterprises, competition policy and intellectual property rights are very serious non-tariff barriers that limit the ability of the emerging and developing countries to compete on transatlantic markets – sometimes legitimately so, and sometimes as a disguised protectionist artifact.

The resulting increasingly intransigent stance on those issues can only impede international cooperation by polarizing the debate even further.

The protection of intellectual property rights (IPR) provides a telling example; both partners “seek to obtain […] appropriate commitments that reflect the shared U.S.-EU objective of high-level IPR protection and enforcement”. Although work remains in those areas (as the failure of ACTA exemplifies), proponents of a strong regime governing property rights – innovation and research-based industries and businesses notably – can cheer. Emerging economies reliant on technology transfers can expect to struggle. And as Intellectual Property Watch was quick to point out, users of such technologies will suffer from a newly consolidated front, with their disseminated interests unlikely to lead to any significant opposition. The benefits of this development are debatable on the grounds of both fairness and efficiency, while its diplomatic consequences seem more obvious.

Indeed, as far as the agreement’s effect on international order is concerned, the conclusion is more clear-cut. It should undermine the future ability to reconcile the transatlantic block’s interest with that of emerging economies. One should not expect that multilateral negotiations on issues such as IPR make any advances in the foreseeable future, but rather prepare for a fiercer trench war.

Categories: International, Politics

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