We’ve heard almost nothing about it, but the Transatlantic Trade and Investment Partnership (TTIP) is important for Ireland
Ireland needs trade the same way French cooking needs butter. By value and volume, we export about the same amount as we produce in the rest of the economy. Given the need we have for trade to keep the lights on throughout our small island, it is pretty surprising how little public debate we’ve had during the negotiations around the Transatlantic Trade and Investment Partnership.
TTIP is one of the largest trade agreements in history
TTIP is designed to reduce the barriers to trade between the two largest economies in the world – the EU and the US. The simple idea is that tariffs, import quotas, protectionist legislation designed to favour local incumbents over better and more competitive arrivals are bad for everyone. Tariffs and quotas, to put it mildly, need to get in the sea and stay there!
Reducing barriers to trade helps consumers in the long run
Say you’d like to buy some US butter. (Though I don’t know why you would do that, given that the stuff tastes like muck. Whatever. Stay with me). If EU butter producers successfully lobby the EU to tax any imported butter products, then they can keep their prices a bit higher, avoid full competition, and keep their market shares higher. The consumer loses out in the short, medium and long terms.
Quotas and tariffs are terrible ideas. What works better is a free trade agreement with regulations on the minimum quality of goods and services being provided.
TTIP isn’t just about tariffs
Are tariffs really that high between the US and the EU? No, they aren’t. It depends on the industry, but the average across most industries is 1 to 3 per cent. That jumps to around 30 per cent for goods such as clothes and shoes. Some of the barriers are expressly protectionist: the US duty on raw tobacco is 350 per cent, for example, and 130 per cent for peanuts.
Sometimes history has determined a weird tariff system: the US imposes a 14 per cent duty on imports for train carriages, while the EU charges only 1.7 per cent for the same thing on imports from the US.
Odd sectors aside, for most products with any tariffs we’re still talking 1 to 3 per cent. Not nothing, but hardly worth five years of negotiations. They began in 2011, ramped up in 2013, and should end in 2016.
The deeper motive behind TTIP is the softer, ‘non-tariff’ barriers to trade, like regulations or legislation. Say the production of butter in the EU has a higher standard of quality than the US. (Again, if taste is any indicator, the answer might well be yes.) US producers would have to incur costs to come up to EU standards. For other products, it might well be the same.
Some obvious areas of contention need to be negotiated too. For example, genetically modified crops are widely used in the US, while they are almost banned in Europe. Many cosmetics are tested on animals in the US, but in the EU that practice doesn’t happen. Cigarette packaging and warning labels on cigarette packaging are different between the US and the EU. Healthcare product regulations are different.
In the US, riskier financial products and services are used, which are not allowed in the EU at present. TTIP could allow these products to enter the EU and compete with other offerings, potentially putting the populace at risk.
Everyone has infant industries they’d like to keep protecting from competition. TTIP puts these under the microscope
Every EU country has a few cherished products and industries it holds most dear, which may well be threatened if TTIP comes into law. In Ireland, the big sticking point is the beef industry, which might get walloped if cheaper meat from the US is available. Luckily for our cow-herding brethren, we have already exported Phil Hogan, who as EU Agriculture Commissioner may be receptive to Irish farmers’ needs.
Overall in Ireland, we stand to benefit massively from TTIP as we exported around €19 billion to the US alone in 2014, with Irish exporters ponying up around €320 million in tariffs to the US. That €320 million would disappear under TTIP, presumably straight into the pockets of the medium and large-sized firms mostly doing the exporting.
For other countries, such as Britain, the health service would be exposed to direct competition for medical services from private providers in the US, something many British politicians are very worried about.
TTIP might put governments in the legal firing line
Another hugely controversial issue is the doctrine of “investor protection” through an enhanced dispute settlement system. A settlement system already exists, but firms like Philip Morris, the tobacco giant, have used the settlement system to help their own case, at the expense of their consumers’ health, of course. Essentially, an enhanced investor protection system means a foreign firm’s investment in a country gets treated the same as a domestic firm’s investment. When something goes wrong, the foreign firm may have its assets expropriated or misused in some way.
TTIP would set up a kind of international investor court, where disputes could be ironed out quickly. This could mean that the Belgian government could be sued by, say, Apple, for an infringement of a trade deal. The new dispute mechanisms don’t get in the way of a country’s right to regulate in the interests of its people, or to pass new laws about different sectors, it just means that international companies’ interests would rank the same as national companies’ interests in any change.
TTIP probably helps massive firms more than SMEs, and the US more than the EU
Consumers will end up paying less for goods and services of similar quality if all goes well. Some sectors will feel the heat of increased competition and consumers may choose to go with them, changing the industry dynamics. Ultimately, the winners will be the shareholders of medium and large firms, whose costs will go down with the drop in tariffs, and whose profits will soar as their potential markets expand.
The guarantees on the security of their investment by the TTIP process will also help get more investable capital passing through EU countries, and their financial systems will of course pocket the necessary fees for these transactions.
Critics of TTIP say it is anti-democratic and pro-big business. Ultimately, the US will do the best of the deal because they do the most international trade, but the democratic rights of each EU country are still respected in TTIP. Many critics of the TTIP process say it disproportionately benefits US interests.
The French negotiator threatened to walk away for this reason, saying the US side was not giving EU firms access to their public markets across the states, access to their agricultural markets or access to their financial markets.
Given how open Europe is expected to be, this seems like a bad deal from some angles.
TTIP isn’t a done deal
Never underestimate the power of a strong lobby group. No government ever met an interest group it didn’t like, especially when it comes to largish sectors which employ considerable numbers of people.
Like Irish beef, enough special interests can crowd out, or outlast, negotiators’ enthusiasm for a deal.
TTIP is a major undertaking which will probably benefit small open economies like Ireland, but that doesn’t mean it’s a done deal.