The EU and the US are the world’s two largest economies. Together, the two account for about half of world production and half of world trade. If the trade between them becomes completely free, the two largest together can become even greater. The EU and the US are now negotiating free trade between them.
- What is TTIP?
- Why do the EU and the US want free trade?
- What will TTIP mean for EU-US cooperation?
- What will TTIP mean for countries outside the agreement?
Globalization means that trade, economic cooperation and the transport of capital or information over long distances and across borders become easier and cheaper . In this sense, globalization has been going on for a long time. This has been the result of both technological changes and political choices. Technological changes have made transport and information exchange easier. But political choices have also been important. The countries make agreements with each other to make trade and economic cooperation easier. A free trade agreement between the EU and the USA ( TTIP – Transatlantic Trade and Investment Partnership) will be a very important agreement.
2: TTIP – a comprehensive free trade agreement
The goal of the negotiations on TTIP is an agreement that regulates all trade between the EU and the USA, a country located in North America according to Iamhigher. These are ambitious goals for the negotiations. The desire is as much free trade as possible . Therefore, tariffs must be removed. Also the second trade barriers to be reduced. An important example is “non-tariff barriers” (NTB – non tariff barriers). Such obstacles are, for example, commodity standards. The countries’ rules and standards for goods determine how some goods should be. There may be requirements for functions, content or how they are produced. Such rules are also used to favor own producers. It is contrary to free trade.
TTIP shall also contain rules for investments . The goal is for American companies to have the same regulations as European companies in the EU and for European companies to be treated on an equal footing with American companies in the USA. In addition, common rules shall be made for patents (intellectual property rights). Furthermore, a court (dispute resolution mechanism) will be established which will decide in cases where the parties are unable to agree on how to interpret an agreement text.
3: WTO and trade policy
The countries of the world have already come a long way in promoting freer trade. The WTO today covers most countries (162) . In the WTO, there are strict rules for what trade policy the countries can pursue. WTO countries have committed themselves to upper limits for tariffs (ceilings), but also to reducing tariffs over time. There have been conflicts lately.
With increased international competition, domestic producers can be outcompeted by foreign producers. Many have feared that free trade could mean increased unemployment and increased social and economic disparities. But at the same time, the countries’ export industries are dependent on access to foreign markets. The WTO agreements balance the considerations of domestic players and groups and foreign ones.
In addition, the main principle of the WTO is that countries should not discriminate against their trading partners. France can not have lower tariffs on imports of cars from the United States than from Japan. However, there are two important exceptions to the rules on discrimination.
- Free trade agreements are allowed. TTIP is just one example of such an agreement.
- It is allowed to give poor countries better conditions than rich countries.
The EU and the US (and Norway) have reduced tariffs in recent years. Since 1990, average US tariffs on countries without trade agreements (MFN tariffs) have been reduced from 5.7 to 3.6 per cent. The EU has reduced tariffs from 6.2 to 5.3 percent. Figure 1 shows the development.
Even without a trade agreement (outside the WTO), tariffs between the EU and the US are quite low . Why then do they negotiate a separate free trade agreement?
4: WTO, trade policy and free trade agreements
In the WTO, trade liberalization has come a long way. Nevertheless, there is far from complete free trade between the countries of the world: Many countries still have partly high tariffs for certain goods . Figure 1 shows average tariffs. Average figures hide many exceptions. And for other countries, tariffs are often higher.
Negotiations on more liberalization are also under way in the WTO . Such negotiations are often conflict-ridden. One conflict is about poor countries gaining better market access for their agricultural products in rich countries. Another is whether rich countries should have better market access for their industrial products in poor countries.
For trade in agricultural goods , world trade is far less liberal (open) than for trade in other goods. It is in the field of agriculture that the conflicts over increased liberalization in the WTO have been most difficult. Negotiations on a new WTO agreement have been ongoing since 2001. There is still no agreement.
There is also conflict over the scope of trade policy. What is trade policy, and what is national policy? One question is subsidies . A country can protect domestic production from foreign producers through customs. It can also protect its domestic producers through subsidies – production subsidies , but also through export subsidies . In the first case, domestic producers are better able to face competition from outside; secondly, an exporter will be better able to reach its export market with its products. Such subsidies make it more difficult for foreign producers to compete. An important question is therefore whether subsidies should be banned in trade agreements.
Another issue is product standards and rules for how production should take place . Among other things, there are differences in such rules that constitute non-tariff barriers to trade. In the EU, there are common product standards. An item that is allowed to be sold in one EU country can be sold in all . In the WTO, there are no common rules, and commodity standards vary greatly between countries and country groups.