What does the TPP mean for Europe?

What does the TPP mean for Europe?

The Trans-Pacific Partnership has been called the ‘biggest trade agreement in history’ and is a big step for the participating member states – but how will it affect Europe?

On October 5th the Trans-Pacific Partnership, a trade deal covering 12 countries including Australia, Japan, Mexico and the US, was announced.

Although negotiations were secret and full consequences cannot yet be estimated, it has already been called the ‘biggest trade agreement in history’ with the countries covered representing 40% of global GDP. It aims at reducing tariffs and introducing new regulations in a variety of areas, including intellectual property, the environment and agriculture.

The agreement is clearly a huge step towards closer economic collaboration for the countries involved – but what are the economic consequences for Europe?

Standards set in TPP – a template for future agreements?

From an economic perspective, the TPP is likely to affect Europe in two ways.

First, the standards set in TPP might serve as a template for future trade deals and over time become widely accepted. This could be problematic for European countries in cases where the new standards set in TPP differ significantly from those currently in place in Europe. In particular, it might affect negotiations of TTIP, a trade agreement that is currently being negotiated between Europe and the US.

TTIP has sparked large-scale protests in many European countries as concerns over the negative consequences of possible new standards, some stricter and some less strict than current European ones, have intensified.

One area of TTIP in which Europe might have to accept stricter standards despite public opposition relates to its heavily criticised intellectual property regulations. These go beyond current international standards, including the WTO’s TRIPS Agreement, and might even require changes to copyright legislation in some countries covered by the deal.

Conversely, setting social and environmental standards in TPP that are weaker than those currently in place in Europe might put pressure on European governments to accept lower standards in future trade deals such as TTIP as well. These examples illustrate the danger that, in the future Europe might be given little choice but to accept the standards set elsewhere without being involved in negotiation processes.

Trade diversion as a consequence of TPP

TPP is likely to lower demand for products from Europe through trade diversion. Countries covered by the deal are important trading partners for the EU: in 2010, exports to TPP countries accounted for over 30% of the EU’s external exports.

By reducing tariffs and lowering trade barriers, trade amongst the countries covered by TPP becomes cheaper, which is likely to increase demand at the expense of the rest of the world, including Europe. It is estimated that although TPP will generate additional global income increases of $295 billion per year by 2025 (in 2007 dollars), a number of countries and regions will lose income.

The country with the biggest expected losses is China, which is estimated to lose $47 billion in income and $57 billion in export revenue annually, assuming it does not join TPP or any other free trade agreements. The expected losses incurred by Europe are much smaller – $3 billion in income and $38 billion in export revenue per year by 2025.

However, the potential negative effects of TPP on Europe should not be overstated: the European Union is in itself the world’s largest trade bloc and the lost income and export increases only amount to a small proportion of total figures.

Europe’s total GDP and export revenues are expected to reach $22,714 billion and $7,431 billion respectively by 2025.

The EU has also agreed to preferential trade agreements with a number of East Asian countries and is currently negotiating with Japan, aiming to conclude negotiations by the end of this year.

Categories: Economics, Europe

About Author

Larissa Arabelle Brunner

Larissa Brunner currently works for a research consultancy focusing on not-for-profit organisations. She holds a BA in Economics and Management from the University of Oxford and a Double Master’s degree in European and International Relations from Sciences Po, Paris and Fudan University, Shanghai.