The emerging US-EU-Asia trade triangle

In his State of the Union address in February, President Obama announced he would initiate formal negotiations on the Transatlantic Trade and Investment Partnership (TTIP). That same day, European Council President Herman Van Rompuy, and European Commission President José Manuel Barroso started negotiations.

In the US and Europe, the proposed FTA is usually portrayed as the potentially largest regional free-trade agreement in history. In President Obama’s address, however, the FTA was mentioned in only one sentence. In Europe, it is seen as manna from heaven to fuel growth in the ailing continent. In Asia, it is a potential opportunity and threat.

The US-EU trade race

The effort to create a US-EU free trade area represents a major deal between two world regions that were the first to industrialize and will be the first to cope with the consequences of maturation, aging and generous social models without adequate economic growth.

In the early 1990s, Henry Kissinger developed the idea of a transatlantic trade pact, based on largely strategic considerations. At the time, the deal was knocked down by France and its effort to shield French cultural industries from Hollywood and Silicon Valley.

The talks were re-ignited in 2007, when they were no longer motivated by the concern of the Japanese challenge, but by China. Now strategic considerations are subject to economic objectives.

As the advanced economies were swept by global crisis, the TTIP talks were set aside. And that’s where they remained at the turn of the 2010s. The efforts to negotiate a bi-continental FTA have intensified as the recovery in the West proved more challenging than anticipated.

Today, the TTIP is divided into 15 specific working groups, focusing on the elimination of all trade tariffs, the reduction of all tariff barriers, and more closely tied cooperation among the EU and US regulatory bodies. The most disputed areas include EU's policy to limit the imports of genetically modified food, as well as EU's relatively looser regulation of the financial sector.

In the summer, the Snowden cyber security debacle ignited a furious political debate between Washington and Brussels. However, the proponents of the deal argue that the economic gains of the partnership exceed the political headaches of the process.

The simple argument is that the TTIP would liberalize one-third of global trade and generate millions of new jobs. The real-life outcome depends critically on the underlying assumptions. In the projections, tariffs are widely seen as “low-hanging fruit.” The big money is in the regulatory issues.

In conservative estimates, tariffs are completely eliminated (currently less than 4 percent) and non-tariff barriers are reduced by 25-50 percent. In this projection, US GDP is expected to increase by 0.5 percent ($77 billion) annually, or by half of that in the more limited scenario. In turn, the EU GDP would rise by $36 billion in the more comprehensive scenario.

The difference stems from the fact that 20 percent of US trade flows toward the EU, while only 8 percent of EU trade flows toward the US

What these and other estimates ignore is the potential backlash by consumer rights and environmental organizations, which have co

Source: china.org.cn