Tag: TTIP

U.S. and EU Trade Barriers Are Too High: Bring Back the TTIP!

In response to threats of retaliation by the EU over his announcment of steel/aluminum tariffs, President Trump has been complaining about high EU trade barriers. Here’s a recent tweet of his:

If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!

And here’s something he said yesterday:

“The European Union has been particularly tough on the United States,” Mr Trump said at Tuesday’s joint press conference with the Swedish prime minister.

“They make it almost impossible for us to do business with them,” Mr Trump complained.

President Trump is right: EU trade barriers are too high. In addition, U.S. trade barriers are also too high. Here’s something I wrote a few years ago about tariffs:

In the context of the recently launced US-EU free trade talks (formally, the “Transatlantic Trade and Investment Partnership,” or TTIP), commentators have noted that tariffs between the US and EU are low, and thus the key part of the talks will deal with so-called regulatory barriers to trade. An article in Inside U.S. Trade observes: “Overall, the U.S. average tariff rate is 3.5 percent, although the average tariff rate on goods that the EU actually shipped to the U.S. last year was even lower, at 1.2 percent, … .”

But these average figures mask some significant “tariff peaks.” There are lots of individual tariff rates, so if many are low or zero, that makes the average figure fairly low; nonetheless, there are plenty of high tariffs still out there. The same article points out some US and EU tariff rates that may come up during the negotiations. Here is the US:

— U.S. light trucks tariff of 25 percent; a tariff on wool sweaters of 16 percent; a tariff on sardines of 20 percent; a tariff on tuna of 35 percent; and a tariff on leather at 20 percent

Here is the EU:

— applied tariffs on honey of 17.3 percent; carrots at 13.6 percent; potatoes at 14.4 percent; strawberries at 20.8 percent; lemons at 12.8 percent, beef at 12 percent; and lamb at 12 percent

And all of those tariffs add up:

— the U.S. collected about $4.5 billion in tariffs from EU products in 2012. … [Of this amount,] $900 million comes from imported German cars; about $260 million comes from Italian clothes and shoes; and about $72 million comes from cheese imports.” 

And regulatory trade barriers are even higher.
 
So perhaps there’s a way out of the back and forth threats of tariff retaliation going on right now: The two sides could restart the TTIP talks, and bring down barriers on both sides.
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RIP, TTIP?

U.S. Trade Representative Michael Froman is having a bad week.  First, Senate Majority Leader Mitch McConnell put the kibosh on lingering prospects that his chamber would consider ratification of the Trans-Pacific Partnership deal this year.  Then Germany’s economy minister proclaimed the 3-year-old Transatlantic Trade and Investment Partnership negotiations had “de facto” failed, with the French trade minister promising to pursue formal termination of the talks – adding that “the Americans give nothing or just crumbs” (which puts the USTR beneath Marie Antoinette, who at least offered cake). 
 
Whether McConnell is being coy in hopes of extracting concessions from the administration on TPP is unclear, but either way the likelihood is approaching certainty that ratification of the Pacific trade deal will become the responsibility of the next president and Congress.  For reasons given here and here, I’m bullish on that outcome within two years.
 
But the TTIP is a different story.  Although the negotiations are not officially dead, they might as well be. Talks were doomed from the outset, laden with too many intractable issues, too many red lines, a thorough lack of realism concerning the time and effort required for success, and a profound asymmetry in the desire to get a deal done. With U.S. negotiators focused on completing the TPP, the EU’s embrace and commitment to the TTIP became a case of unrequited love.  With each EU overture, the U.S. negotiators could play hard to get.  And they did.
 
Now, the United Kingdom’s likely departure from the EU complicates matters further, with uncertainty about the future composition of the EU impeding proper evaluation of the expected tradeoffs from a prospective TTIP. So, while the prevailing uncertainty likely means TTIP stasis for the next couple of years, Brexit would give U.S. negotiators even more leverage in TTIP than they already have. The possibility of a US-UK free trade agreement or a UK accession to the TPP would undoubtedly shift TTIP dynamics further in favor of U.S. negotiators – and give the UK added leverage in negotiating its own post-Brexit relationship with the EU.
 
TTIP isn’t dead. It’s in a coma. For it to have any hope of recovery and real success – an outcome with real liberalization that is – a restoration of some semblance of symmetry in demand for that outcome is necessary. With the existing imbalance, it’s better to have no deal at all because the misguided objectives of negotiators are to open foreign markets as much as possible, while keeping their own as closed as possible. Negotiators with leverage are more likely to succeed at keeping their own markets closed, depriving their fellow citizens of the real benefits of trade. For Americans to realize the most important benefits of trade liberalization, its negotiators must be matched up against foreign negotiators with approximately the same strength (or leverage). When the foreign trade negotiators don’t have enough leverage, U.S. consumers and import-consuming industries lose.
 
For any TTIP outcome to be considered successful, the deal must tackle U.S. restrictions on competition in shipping (repealing the Jones Act), commercial air services, and government procurement projects. Trillions of dollars of annual economic activity in the United States is provided by domestic suppliers facing no foreign competition, which represents an enormous drag on U.S. growth.  In the TTIP negotiations to date, the United States hasn’t budged an inch to accommodate any liberalization in those areas.  Until that is no longer the case, the TTIP should be considered a failure.
 
When the TTIP negotiations were launched in 2013, I warned in this paper that the talks included the seeds of its own destruction and that a successful outcome would require a new approach:

As great as the benefits may be, the TTIP was not borne of any genuine enthusiasm for the enterprise. In Europe, it was seen as a last resort. Frustrated by the failures of monetary policy and restricted by the imperative of fiscal austerity, policymakers were looking for something—anything—to embrace as a potential economic tonic. Whether they actually thought TTIP likely to bear fruit is an entirely different matter. They wanted something to behold as evidence that Greece did not represent Europe’s fate. Potential voter wrath, political backlash, and stalemate–historically effective deterrents to initiating transatlantic trade talks–took a back seat to the affirmative optics of embracing some plausible initiative that might steer Europe from the abyss.

For U.S. policymakers, the main motivation for launching TTIP was to assuage EU concerns that the United States had written her off in its “pivot” to Asia.
 
Other rationales for pursuing TTIP include the argument that the world needs the United States and European Union to reassert global economic leadership at a time when no other country or group of countries is willing or able to do so. Another is that there is a race to establish global production standards and TTIP, representing half the world’s output, presents an opportunity to establish them here and now. A third ex-post rationale is that by establishing disciplines on issues where other trade agreements are silent—issues like currency manipulation, the operations of state-owned enterprises, local content rules, and others—the United States and EU could establish rules that China and others would eventually have to heed.
 
It is within this context that TTIP emerged. But none of those rationales–pursuing TTIP as a last resort, assuaging hurt feelings, establishing standards, disciplining China and others–seem likely to provide the motivation for negotiators and governments to dig deep and remain committed enough to make difficult choices that may carry political consequences. As the talks drag, will governments remain committed to the goals? Will governments motivated by the “last resort” rationale continue to invest seriously in the negotiations if their economies experience growth and the political costs of TTIP no longer look so necessary to incur? Already there have been signs of retreat from the ambitious goals articulated at the outset.
 
From the outset, negotiators erred by setting a 2014 completion date for the negotiations. There is absolutely no plausibility to that deadline and, frankly, failure to amend the timetable with realistic deadlines will only undermine the credibility of the undertaking with a public already skeptical of trade negotiations.

There are dozens of issues on the table of varying complexity that will likely take several years to resolve. Rather than have a single deadline for a single undertaking, the negotiators should announce that their intention is to achieve a multi-tiered agreement that yields multiple harvests at established time intervals. Some analysts have referred to the TTIP as a “living agreement,” although a common understanding of that concept is not evident nor, to my knowledge, have the governments or their negotiators used this characterization in any official context. They should. And it should work something like this.

Negotiators would take stock of the issues on the table and rank them in order of importance to a successful TTIP conclusion. They would then rank those same issues in terms of order of difficulty to resolve. Based on averaging and some agreed upon weighting of those two sets of rankings, negotiators would identify what they and their counterparts see as the most important and least important issues, as well as the most difficult and least difficult issues to resolve. That exercise would produce a road map for how to proceed.

When the dust settles and greater certainty emerges, the United States and EU (and UK) might consider relaunching the TTIP negotiations along these lines. But the parties should come to the table with a genuine willingness to liberalize everything (including sacred cows) because that is what will generate the interest, excitement, and leverage to achieve a really successful outcome.

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Transatlantic Regulatory Cooperation: Possible, But Don’t Bet the House

As the prominence of tariffs in the transatlantic relationship has receded and transnational supply chains and investment have proliferated, regulatory barriers to transatlantic trade have become more evident. Reducing duplicative regulations that increase production and compliance costs without providing any meaningful social benefits is a chief aim of the Transatlantic Trade and Investment Partnership negotiations. Indeed, most of the economic gains from the TTIP are expected to come from this exercise.

But that is easier said than done.  According to University of California-Irvine law school professor Gregory Shaffer, “regulatory barriers to trade can be more pernicious and more difficult to reduce than tariff barriers because they often reflect certain cultural values and preferences, and there are often more interests vested in the status quo.” In his Cato Online Forum essay, submitted in conjunction with last month’s TTIP conference, Shaffer describes five different approaches to regulatory coherence/harmonization (with pros and cons) that could be undertaken by U.S. and EU negotiators.

Depsite vastly different approaches to regulation on opposite sides of the Atlantic, Shaffer points to examples of successful cooperation in recent years as evidence that the TTIP’s regulatory coherence discussions could bear fruit. But he doesn’t bet the house on that outcome. Instead, he writes:

We should nonetheless be cautious in our optimism given the serious impediments to achieving regulatory coherence. Removing regulatory barriers to trade and investment while continuing to reflect local preferences and retain democratic accountability is, and always has been, a challenging undertaking.

Read Shaffer’s essay here.  Read the other Cato Online Forum essays here.

TTIP Is More Likely to Reinvigorate Than Subvert the WTO

In his Cato Online Forum essay, Georgetown University law professor Joost Pauwelyn deftly rebuts some of the central – but, as you will be convinced, outdated – objections to the Transatlantic Trade and Investment Partnership. Joost’s essay supports two main points:

First, the Transatlantic Trade and Investment Partnership (TTIP) is less of a threat to multilateral trade than were first generation free trade agreements (FTAs), which involved a proliferation of preferential tariff treatment.  And second, unlike these shallow FTAs, deep FTAs – such as TTIP – force us to re-think the operating system of the World Trade Organization (WTO).

Thoughout his presentation, Pauwelyn challenges certain long-held assumptions about the trade-diverting effects of preferential trade agreements, making a compelling case for why TTIP is a different animal.  He also exposes some of the conventional wisdom and calls into question some of the purist gospel about the need for WTO primacy, arguing that its role should be diminished and more focued.

Read Joost’s essay here.

Read the other essays published in conjuction with the Cato TTIP conference here.

Regulatory Coherence Done Right Will Make TTIP a Win, Win, Win

Trade economist Hanna C. Norberg writes:

When it comes to the value of real estate, the three most important factors are said to be location, location and location. With regards to the Transatlantic Trade and Investment Partnership, it’s regulation, regulation and regulation. 

In her Cato Online Forum essay, which was published in conjunction with this month’s Cato TTIP conference, Dr. Norberg explains how firms, workers, and consumers in the United States, in the European Union, and crucially (for those concerned about trade diversion and other adverse externalities), in third countries, can share in the benefits of reduced regulatory compliance costs.  Achieving greater economies of scale, reducing the costs of under- or over-estimating market-specific demand, reducing barriers to entry for smaller firms, and creating efficiencies in portions of global value chains that will have ripple effects on other portions are all channels through which TTIP can drive global growth.

The associated cost savings from these efficiences, Norberg argues, “get passed on in the form of lower-prices, higher wages, more research and development, new and better quality products, and more investment.”

Read Hanna’s essay here.

Find the other essays here

Estimating TTIP’s Benefits and Costs: Not an Exact Science, But Enlightening Nevertheless?

Note: A previous version of this blog post included an incorrect claim that the Bertelsmann study was funded by the German government. It was not.

Ever since two econometric studies (CEPR and Bertelsmann) purporting to estimate the gains from a successful Transatlantic Trade and Investment Partnership agreement were published in 2013 revealing positive – but vastly disparate – outcomes, TTIP opponents have been on the offensive, dismissing economic modelling as a subjective and politically motivated exercise.

Although estimating the benefits and costs of a massive trade agreement (for which the terms remain unknown) can hardly be considered an exact science, there is value to the public and to policymakers in understanding the range of possibilities. So, in other words, perhaps the problem is not the production of econometric estimates but, rather, the manner in which those estimates can be misused or misinterpreted that should concern us.

At the Cato TTIP conference earlier this month, there was a whole session devoted to the topic: Understanding the Economic Models and the Estimates They Produce.  That discussion is fleshed out a bit in two Cato Online Forum essays, which I want to bring to your attention.

The first is a critique of the models from University of Manchester economics professor Gabriel Siles-Brugge, who articulates his perception of the problem and suggests some remedies.  The second is a defense and broader explaination of the models from University of Munich professor and director of the Ifo Center for International Economics Gabriel Felbermayr, who is the primary modeller/author of the Bertelsmann study.

Other conference-related essays, including a couple more on econometric models (from Laura Baughman and Dan Pearson), can be found here.

The Strategic Opportunity and Strategic Imperative of TTIP’s Success

In her Cato Online Forum essay about the strategic dimensions of the Transatlantic Trade and Investment Partnership, Fran Burwell of the Atlantic Council sees both opportunity and necessity in its successful conclusion.  The opportunity comes from – among other things – combining the strength of the transatlantic economies (which currently account for 46% of global GDP) through greater economic integration, which will provide the leverage necessary for the United States and Europe to continue to exert dominance over global trade rulemaking and standards setting.

The necessity of TTIP’s success stems from the threat to Europe (and, thus, to the transatlantic relationship) posed by Vladimir Putin, who is working to subvert the deal.  ”[F]ailure of the negotiations,” Burwell writes, “would be one of the best indications possible to Vladimir Putin and others that the U.S.-European partnership is just rhetoric without the capacity for action.”

Read Fran’s essay here.

Read the other essays published in conjunction with Cato’s TTIP conference last week here.

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