Transatlantic Trade and Investment Partnership (TTIP). A Discussion about Benefits and Drawbacks

Term Paper 2014 20 Pages

Economics - International Economic Relations


Table of contents


List of figures

List of abbreviations

1 Introduction
2... Background of TTIP
2.1. The Importance of Trade Relations between EU and US
2.2. Reasons for TTIP

3. Key TTIP Negotiation Topics
3.1. Market Access
3.2. Regulatory Issues and Non-Trade Barriers
3.3. Rules Addressing Shared Global Trade Challenges and Opportunities

4. Benefits of TTIP
4.1. Mutual benefits for the EU and U.S
4.2. Benefits for the Whole World

5... Drawbacks of TTIP
5.1. Mutual Drawbacks for the EU and U.S
5.2. Drawbacks for the Whole World

6. Discussion
6.1. Statement of Political Parties
6.2. Own Opinion

7. Conclusion



This paper introduces the transatlantic trade and investment partnership (TTIP) which is a free trade agreement between the European Union and the United States. Currently, both partners are negotiating about the content of the agreement. This includes amongst others the removal of trade and non-trade barriers and regulatory issues. Some of the topics are highly controversial mainly due to differing standards and norms of both partners. After a thorough introduction of the background of TTIP as well as its content, the paper discusses possible benefits and drawbacks. These opportunities and risks are evaluated for both partners, the EU and U.S., but also for other countries that are not involved in discussions. By reading this paper, the reader has the opportunity to inform himself/herself completely about TTIP and to additionally form an own opinion on TTIP based on the comprehensive benefits and drawbacks that are presented in this paper. At the end, stances of the most important political parties in Germany and America are presented followed by an critical evaluation of TTIP by the author. The paper finishes with a conclusion of the most important axioms of TTIP.

Keywords: European Union; United States; TTIP; benefits and drawbacks; WTO, Free Trade Agreement.

List of Figures

Figure 1 Household disposable income, million euro, 2027 benchmark 9

List of abbreviations

illustration not visible in this excerpt

1. Introduction

The European Union (EU) and the United States (U.S.) are currently discussing a free trade agreement (FTA) which is called transatlantic trade and investment partnership (TTIP). The negotiations started during the week of July 8, 2013 in Washington and since then continued behind closed doors because both negotiating partners want to keep discussions in secret (Akhtar Jones, 2013, pp.107-109). The aim of TTIP is that both countries benefit economically from the FTA for instance with regards to removed trade barriers like tariffs and simpler processes of investing in each others’ country. The creation of more jobs, an increase in competitiveness and fostering greater growth are further associated objectives and expectations (European Commission, 2013a; High Level Working Group on Jobs and Growth, 2013, p.1). TTIP can potentially be the largest FTA for the U.S. and underlines their effort made in negotiating several bilateral and regional FTAs (Akhtar et al, 2013, p.111). On site of the EU, the European Commission is in charge of the negotiations and represents the 28 member states. The opinion of the U.S. is represented by the United States Trade Representative (European Commission, 2014). Even though the negotiations are still on­going, TTIP has huge potential to be used as precedent for the development of rules in future multilateral negotiations in other countries as well as the World Trade Organization (WTO) (Schott, Cimino, 2013, p.263). TTIP is a highly controversial and very current topic and opinions are deeply divided on this issue.

Therefore, the first aim of this paper is to objectively explain the nature and background of TTIP together with its components. The second key aim is to illustrate respective benefits of the FTA and make the reader aware of possible drawbacks. After having read the paper, the reader will have a thorough understanding of TTIP itself and why this topic is highly controversial. To reach these aims, the paper is divided into three main parts. The first part discusses the background of TTIP and highlights the importance of trade relations between the EU and U.S. Before explaining the three most important key topics of TTIP, the reasons for implementing TTIP are analyzed. After understanding the content of TTIP, potential benefits and drawbacks are analyzed for both, the affected partners and the rest of the world in the second part of the paper. The third and last part consists of statements of important political parties in Germany and the U.S. as well as my own opinion. The paper finishes with concluding the most important points of this paper and involves recommendations for future negotiations for both partners.

2. Background of TTIP

The suggestion of a FTA between the EU and U.S. is not recent; the idea rather has been discussed for many years. In 2011, the High Level Working Group (HLWG) consisting of experts from the EU and U.S. was established with the aim to research potential benefits and drawbacks. Their final report was published in 2013 and included the result that positive effects of the FTA were predominating. On basis of this final report, HLWG suggested that the EU and U.S. should begin with their negotiations (European Commission, 2014).

2.1. The Importance of Trade Relations between EU and US

The successful trade relationship between Europe and the U.S. accounts for the largest economic relationship in the world. If the merchandise trades of both partners are summed up, they account for 47% of the overall trade worldwide. Moreover, both partners almost generate half of the world’s whole gross domestic product (GDP) (Cooper, 2014, p. 2) although the EU accounts for less than 7% of the world population and the U.S. for just about 5% (Koppmann, 1998, p.118). The EU is a crucial trading partner for the U.S. which is mainly due to the EU being the largest economic market worldwide. Additionally, the EU was the U.S.’s biggest investor in 2011 (European Commission, 2014) and both parties have invested immense amounts of money in each other’s countries (HLWG, 2013, p.1). Cooper (2014, p. 2) states in his “CSR Report RL30608. EU-U.S. Economic Ties: Framework, Scope, and Magnitude” that the EU and U.S. have almost the same level of advancement and economic development. The similarity of being key producers of advanced technologies and advanced financial sectors pave the way for TTIP. Many scholars have the opinion that this trade relationship has not yet reached its peak and still has potential (Akhtar et al., 2013, p.111).

2.2. Reasons for TTIP

There are several main reasons why the EU and U.S. decided to start negotiations about a FTA. One main factor was the lasting economic crisis in addition to the stalling tactics with regard to the Doha Development Agenda (European Commission, 2014). Another crucial reason for negotiations is that TTIP is suppose to help both partners to address the challenge of China and other countries representing economically rising powers whose roles constantly gain more importance in the world (Akhtar et al., 2013, p.109). The introduction of TTIP is linked with the hope of fostering competitiveness for both, the EU and the U.S. Several public and private stakeholders demanded reductions in tariffs in order to boost trade and to react to the slow economic growth as well as the increased competition mentioned above (Akhtar et al., 2013, p.111). Not only gaining competitiveness is of immense importance, but also the fact of Europe being more independent from Russia as energy provider is an additional occasion for TTIP. American shale gas deposits could be an alternative as the U.S. will possibly reverse export restrictions with the introduction of TTIP (Beck Ohr, 2014, p.344). The mutual benefits which are discussed in chapter 4.1., deliver further important reasons of why TTIP should be implemented.

3. Key TTIP Negotiating Topics

There are some basic points about which both sides of the Atlantic are discussing. This time, even red-hot topics such as data flow are included in discussions (Schott et al., 2013, p.263). Cultural sectors build the exception and are excluded from discussions due to France’s request (Powell, 2013). In the following section, the three main areas of this comprehensive agreement on basis of HLWG’s final report (2013) are explained.

3.1. Market Access

HLWG suggests eliminating or reducing barriers with regards to market access. Barriers are amongst others tariffs which should be eliminated including sensitive tariffs that are slowly phased out (HLWG, 2013, p.3). This is an important point of TTIP although only between 4% and 7% of the current volume traded is subject to tariffs (Ries, 2013). The issue of tariffs can be problematic concerning culturally sensitive sectors such as the audiovisuals sector (Akhtar et al., 2013, p.114). Further recommendations of HLWG include binding the highest rate of liberalization in the service and investment area (HLWG, p.3). Because trade barriers are already low, the following topic of removing non-tariff barriers (NTBs) is of even greater importance (Ash, 2013, p.12).

3.2. Regulatory Issues and Non-Tariff Barriers

Regulatory issues and NTBs are regarded as the most critical factor of the whole agreement. “NTBs are the result of differences in regulations and standards” (European Commission, 2014). An agreement or disagreement could decide over making or breaking the deal (Akhtar et al., 2013, p.115). A settlement in this area could lead to a reduction of cost and administrative delays caused by strict and differing regulations in specific sectors (HLWG, 2013, pp.3-4). The European Commission (2013a) states that the high-standard of consumer safety and environmental protection is aimed to be kept at the same level. The regulation issues seem to be a very sensible topic especially due to different preferences and values.

Particularly divergent food laws, specific industrial goods and allocation of public orders are sensitive topics (Mildner Schmucker, 2013, p.1). In Europe, ecological food is massively preferred whereas in the U.S. genetically-modified (GM) food is more common (for further information also see Case Study 1 “GM Food and EU regulations”). An example for the effect of removing NTBs can be found in agriculture: The U.S. bans some kinds of European cheese and the EU bans some GM products from the U.S. The removal of tariffs and NTBs could lead to a more open market which enables both countries to sell more (European Commission, 2014). NTBs can also be found in the car-, pharmaceuticals-, cosmetics- and textile industry (Mildner et al., 2013, p.2).

The decision of including financial services in the area of regulations still needs to be discussed as well. Europe supports the suggestions whilst the other side declines the idea of financial services being part of TTIP (Akhtar et al., 2013, pp.116-117).

3.3. Rules Addressing Shared Global Trade Challenges and Opportunities

According to Akhtar (2013, p.117), the EU and U.S. are quite similar when it comes to trade- related rules. Thus, this topic should not be as fueled as the topic of regulations. Therefore, the most important and differing rules are presented in the following.

The inclusion of the clause of investor-state dispute settlement is a highly diverse topic with supporters and opponents. The inclusion would mean that companies have the right to sue foreign governments in case of conflicts with local legislation thus protecting foreign investors (Ries, 2013). Besides investment issues, the discussion about intellectual property rights (IPRs) is a negotiating object for which both partners have high protection standards. The HLWG suggests considering the most significant IPR issues jointly although some IPR issues like geographic indications are quite controversial. Environment and labor is another subcategory of the discussed rules showing an opportunity for further discussion. Supplementary areas that show chances for rule development include for example data flows, small and medium sized enterprises (SMEs), customs and trade facilitation (HLWG, pp. 5-6).

4. Benefits of TTIP

The Centre for Economic Policy Research (CEPR) in London published the study “Reducing Transatlantic Barriers to Trade and Investment” in 2013 containing positive effects of TTIP. In the following, the beneficiary effects of TTIP are not only analyzed for both trading partners, but also for the whole world economy. These benefits are subdivided into several logical categories of which each is further explained in detail.



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TTIP Freihandelsabkommen Transatlantic Trade and Investment Partnership Thema TTIP




Title: Transatlantic Trade and Investment Partnership (TTIP). A Discussion about Benefits and Drawbacks