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Free but fair? A Partnership to strengthen global trade

Submitted by on 07 Apr 2015 – 09:49

The Transatlantic Trade and Investment Partnership (TTIP) is essential for securing the EU’s competitiveness on the international stage, argues Felix Neugart from the German Chambers of Commerce and Industry (DIHK). 

BerlinPhoto: Sascha Kohlmann

Photo: Sascha Kohlmann

In just 10 years from now 90% of the world’s growth will be generated outside the EU. If we want to remain competitive and secure employment in Europe, we have to open up new markets for our exports. The Transatlantic Trade and Investment Partnership (TTIP) seeks to do so by invigorating transatlantic trade in goods and services. The EU already maintains close trade relations with the US, but significant potential remains untapped. In order to stimulate additional trade flows and new employment opportunities, TTIP will abolish unnecessary trade barriers.

Average tariffs in transatlantic trade amount to three percent. This does not seem much but given the huge trade volume their elimination would yield significant economic benefits. Even more important, however, is TTIP’s goal of easing so-called non-tariff barriers. Today, products have to be certified in the EU as well as in the US even if the certifications are based on equivalent criteria. European machines have to be altered for export just because, according to US law, the cables need to have a different colour. This additional burden for the producer can have two consequences: either it leads to higher costs for the importer and thus for the consumer – without any value-added – or to the failure of the deal. The same applies to extensive bureaucracy, e.g. complex customs documents and procedures, which only increases the price of a product without making it more valuable. These problems hit small and medium-sized companies the hardest since their resources are limited. As a consequence many of them have not been able to enter the US-market which is why one of TTIP’s main goals is to facilitate exports for SMEs. One step into the right direction would be the mutual recognition of certifications for those – and only those – cases where the EU and the US achieve equivalent safety standards through different approaches. This would prevent producers from having to go through two different costly certification processes. At the same time, the right of each trading partner to define their own level of protection and product quality will not be touched by this cooperation on equivalent certifications.

TTIP is also about developing future standards together – to avoid two different approaches from the outset. This is particularly interesting, for example, in the newly emerging fields of electronic cars and green goods. We need to cooperate and learn from each other to open up new market opportunities and to promote these technologies at a global level. This will create new employment opportunities on both sides of the Atlantic through increased exports and by attracting new investments.

The agreement is a chance for the EU to define global standards and set the rules of the game together with America. The progressing integration in the Asian-Pacific area moves the centre of the world economy towards Asia. The new regional free trade agreements in that area require a European answer to sustain the EU as a global economic and political player. It is therefore important to deepen the economic transatlantic cooperation not least for the rapprochement of the EU and the US. The historically grown strategic partnership with the US can be made fit for the future with TTIP, while our common values will be strengthened. The aim is not the reduction of social and environmental standards but their fortification: with regard to this, we have to send a clear signal against a global race to the bottom. We must not forget: despite some differences we are much closer to the US than to any other trading partner – not only when it comes to social and environmental standards but also regarding our understanding of fair competition. This can be seen from reoccurring trade conflicts with emerging countries on dumping and other trade distorting measures.

Photo: Pete Bellis

Photo: Pete Bellis

Furthermore, a comprehensive agreement between the world’s largest economic powers could reinvigorate the worldwide liberalisation of trade. The tendency towards protectionism has increased especially since the financial crisis. With the multilateral negotiations being blocked, a trade deal of this size is the only way to incentivise other countries to increase efforts to cut red tape for exporters and existing trade barriers. Moreover, if other countries decided to adopt the transatlantic standards TTIP could considerably facilitate trade globally.

Overall, TTIP could become an important contribution to the development and strengthening of the global trading system, and, in so doing, would level the playing field for trade among all nations. Due to globalisation, uniform rules for world trade become more and more important. Today, EU and the US are still in the position to define these rules and to assure that our traditional values like rule of law and sustainable trading find their way in this new trading system. TTIP is about securing standards at a global level, not about lowering them. For a world trade which is free but fair and which helps securing our future.

Felix Neugart is Managing Director of International Economic Policy at the Association of German Chambers of Commerce and Industry (DIHK).