The Transatlantic Trade and Investment Partnership (TTIP) being brokered between the European Union (EU) and the US has faced numerous challenges since it was first mooted. The latest blow to negotiations came when the UK voted to leave the EU. Will Brexit make or break the deal? Aleya Begum investigates.
Earlier this year the UK public held a national referendum and voted to leave the EU. The move, which shocked most of the world, has brought many questions to the fore with regards to the future of the single market and impending trade deals. TTIP is one such trade deal on the cards. The partnership aims to promote trade between the EU and its biggest export market, the US, by cutting tariffs and standardising regulations. After missing an original completion deadline in 2014, TTIP has faced numerous obstacles and the exit of the UK, one of its staunchest supporters, could now put the agreement in limbo.
On the one hand, there is the argument that the EU must now, more than ever, form a united and decisive front and that the more committed members of the union should conclude a TTIP agreement in the interest of European solidarity and cohesion.
On the other hand, the EU is now in a state of review itself and its structure and stability have been under heavy interrogation. Rating agency Standard and Poor’s (S&P) recently declared the EU as “unsustainable” and in need of urgent reform. It highlighted that the EU lacks a coherent “pooling” of sovereignty, as some aspects of national sovereignty are shared while others are not. It argued that the way forward is to either share more aspects – resulting in full federalism – or share less – and return to a looser confederation of sovereign states.
While the EU must reflect on its structural effectiveness, there are also clear divisions between the different countries. The German chancellor, Angela Merkel, has continued to voice her support for the partnership and at a news conference in July, told reporters: “I regard this agreement as absolutely right, and important.” She is pushing to reach an agreement from both sides of the Atlantic by the end of the year.
Meanwhile, French President Francois Hollande, has said he will “never accept” the deal in its current form. He argues that the rules that TTIP enforce on France and the rest of Europe, particularly in relation to farming and culture, are too friendly for US business.
“We will never accept questioning essential principles for our agriculture, our culture and for the reciprocity of access to public [procurement] markets,” Hollande was reported as saying at a meeting of left-wing politicians in Paris earlier this year. “At this stage France says ‘No’.”
Hollande’s stance is supported by a surge in widespread public opposition to TTIP and other free trade deals. Protesters to the agreement have taken to the streets across the EU. A survey in Ireland meanwhile, has revealed that a majority of respondents want a referendum on the proposed trade deal. On the other side of the pond, a coalition of 450 NGOs has called on the US Congress to oppose TTIP due to its perceived impact on the climate.
The issues of split support and deficient EU powers were all highlighted during the EU’s negotiations around a separate trade deal with Canada – the Comprehensive Economic and Trade Agreement (CETA). CETA seeks to accomplish much of the same as TTIP by opening up trade between the EU and Canada. After five years of discussions, behind closed doors, negotiations were completed in 2014. The agreement has since been through legal review and is due to be ratified by the EU Council this year.
Normally, national governments surrender their powers to negotiate trade deals and impose tariffs to the European Commission (EC). But in July, Brussels experienced a significant setback when France and Germany unexpectedly insisted that the deal would have to be ratified by the EU’s national and regional assemblies – a move that raises concern over the EC’s control and starts a process that could set the agreement timeline back significantly. The CETA negotiations are being watched closely, as they are considered by many to indicate the likely processes and outcomes that TTIP will follow.
“It’s clear the EU has a big problem, whether CETA will be ratified [or not] is a striking example of that,” chief economist at advisory firm Global Counsel, Gregor Irwin, tells GTR.
“The EU is clearly going to suffer from not having the UK [which has been] a very strong and more or less consistent advocate of trade liberalisation.”
Author of the report Realising TTIP’s Strategic Potential, Irwin argues TTIP may potentially allow Europe and the US to not only benefit from bilateral commercial gains, but to implement global standards to trade. The report identifies strategic risks – the most significant being the failure of TTIP.
“The EU is essentially competing with the US and China when it comes to setting international standards and the competitive position. With the UK leaving the EU that competition becomes all the greater,” he says.
He explains this is partly because the UK leaving the EU is already damaging to the EU’s reputation and partly because the ability to set standards internationally and have influence is determined by scale. “The EU without the UK will obviously be smaller in scale and the European global standard setting is likely to be smaller,” he says.
The latest round of negotiations for TTIP took place in Brussels in July and stretched on longer than planned.
“It was welcome to see them talking and talking. The round lasted much longer than expected and apparently an outline of a deal is now in sight,” says head of Europe analysis at IHS, Laurence Allan.
“Progress appears to have been made on tariffs, textiles and regulations regarding several other industries. However, according to negotiators, gulfs remain in a number of areas, including environmental standards, health and safety regulations, GMOs and government procurement, amongst others.”
The UK reality
On the other side of the equation is the UK. After a bold statement on its desire to break away from the union, it became apparent that there was no real plan of action to follow. In the weeks after the referendum, Westminster witnessed a show of musical chairs with a series of resignations and reappointments, including the seat of the country’s prime minister David Cameron. Ironically, Cameron was replaced by Theresa May, another Remain supporter. May hastily formed a new cabinet and created an International Department of Trade. She appointed four ministers in the place of one, and announced that Liam Fox, a Leave supporter, would lead the team as secretary of state for trade. Working with Fox would be the former minister of state for trade and finance Lord Price as well as Greg Hands and Mark Garnier.
Since their appointments, the ministers have been travelling around the globe promoting post-Brexit UK trade relations, while the prime minister herself has been racing around meeting with European heads. Fox and Price both visited the US in July and announced plans to open three new offices for the country’s International Department of Trade in the US in Minneapolis, Raleigh and San Diego.
“On TTIP, our position remains unchanged. We want an ambitious TTIP agreement with tangible benefits for both businesses, particularly small businesses, and consumers and will continue to support this,” a spokesperson for the department tells GTR.
“The new locations will complement existing posts in the US network, extending the UK’s reach into new and potentially lucrative areas.”
But with its departure from the EU, it is unclear whether a TTIP agreement will include the UK or if the country will have to seek its own separate trade deal.
“There is no question that Brexit complicates TTIP. It raises difficult questions over how or in what form a deal might apply to the UK,” partner at Global Counsel Stephen Adams tells GTR.
But before the UK can even consider new trade deals, there are a series of practical, procedural and political steps that it must complete. Only after these are resolved can it fully engage in any ambitious negotiations, says Adams.
In a report, UK Trade Policy and Brexit, Adams says the first priority of the new government should be to build sufficient capacity. This will require recruitment of several hundred new specialists to cover negotiations and policymaking, as well as building from scratch a new institutional trade policymaking process and a “trade defence” process (to take over the work of the EU’s anti-dumping service). While some of these steps will be bureaucratic in nature, others may need new legislation.
The other key preliminary for the UK will be to establish its World Trade Organisation (WTO) profile – determining tariff rates, quotas and trade commitments to WTO members. This template matters, because without knowing what the UK plans to offer WTO members as a basic, it won’t be possible for countries to negotiate ‘preferential’ agreements. The new profile will need to be agreed on and confirmed by all 163 other WTO members individually and then collectively. The WTO’s consensus-based decision-making means that in both theory and practice, the opposition of only one of its members can force everyone back to the negotiating table.
Once those are in place, any new deals will have to have “bells and whistles” to count says senior trade economist at HSBC, Douglas Lippoldt: “To be effective, the new UK trade accords will need to go beyond traditional trade barriers like tariffs and quotas. In our view, they will need to tackle regulatory impediments, service sector access, customs and trade-related aspects of other supportive policies ranging from intellectual property protection to worker rights. Failure to address non-tariff barriers could be equivalent to a tariff of roughly 10% to 15% on UK trade, in our estimation.”
UK-US bond in the spotlight
Despite a deep history of alliance, the US has been quite clear from pre-referendum days that should the UK leave the EU, there would be no US-UK trade deal anytime soon. Barack Obama himself has said that the US was interested in negotiating with a big bloc and in that vein, the “UK is going to be in the back of the queue”.
“It’s pretty clear that the opportunities for the UK regarding the US will be conditioned upon where the US gets with the EU on TTIP. As long as TTIP remains a reasonable possibility for the US, it is unlikely to give serious attention to the UK,” says Irwin.
“The US will probably prefer to see the UK involve itself in TTIP negotiations now while still an EU member and then join TTIP, assuming its agreed in two to three years when the UK leaves the EU. If TTIP goes off the rails, that’s when an opportunity may emerge for the UK and US to do something directly.”
There have even been suggestions that a similar agreement taking place on the other side of the globe, the Trans-Pacific Partnership (TPP), a 12-country negotiation being led by the US and Japan, could be an additional – or alternative – option for the UK.
In an interview with Bloomberg, US trade representative Michael Froman said: “We’re certainly going to want to do whatever we can to deepen our relationship with the UK as well as with the EU, and ultimately that could mean the UK joining TTIP when it’s completed. I’ve even heard some people suggesting that they could join the TPP.”
Both TTIP and TPP are responses to the failure of the multilateral system to produce comprehensive trade liberalisation, essentially the collapse of the Doha Round, and so both are designed to start with a smaller group of like-minded countries with the option for others to follow later.
“In many ways the success of TTIP is if other countries join and that’s not by geography: same would apply with TPP. I wouldn’t rule it out. It should be given consideration,” says Irwin.
Regardless of TTIP or any other deal, it is clear the UK must prioritise its relationship and trade agreement with the EU. Its neighbour is its largest market by far, and changes to arrangements here would be most disruptive for UK supply chains. What’s more, the agreements made between the EU and the UK will be watched closely by all other markets as they are likely to be the most generous, since the UK has much to lose from a failure to come as close as possible to the current free trade status quo.
The uncertainties currently surrounding TTIP are numerous. The EU is not only challenged by Brexit, but the ongoing eurozone crisis and the migrant situation have all rocked the political project to its core. There is growing opposition amongst the public and professional bodies on both sides of the deal and three key countries in the partnership face general elections over the coming year – the US, France and Germany.
The US election has narrowed down to a race between the free trade sceptic Republican candidate, Donald Trump, and Democrat leader, Hilary Clinton. While Clinton is putting across a trade sceptic position, the whole notion of economic diplomacy was an idea of hers when she was secretary of state. The TPP and TTIP were both central components to that.
“With both presidential candidates espousing their opposition to new trade deals, the TTIP is likely to be a relatively low priority for either administration during their first six months. However, Clinton at a minimum has always been a free trade advocate prior to this most recent campaign, meaning only modest renegotiations might be required when she gets her team up and running,” says Allan.
What will matter is what the demographics in Congress look like after the election. It is largely expected that there will still be a Republican majority in both houses. Despite Trumps rhetoric, the Republicans are traditionally liberal when it comes to free trade.
In Europe, particularly France and Germany, the run-up to the elections are expected to cause problems for TTIP as leaders supporting the deal are likely to waver to win popularity.
“It may be that we are entering into a temporary or long-lasting difficult phase for trade negotiations in the EU,” says Irwin.
Commenting on whether TTIP will see an end game this year, he says: “I don’t think anyone seriously thinks it will happen. If it does happen it will be such a small and unambitious deal that I think arguably it shouldn’t happen. Like the way Doha was wrapped up [by] carving out a small but relatively inconsequential component and basically admitting defeat without admitting defeat.”