TTIP. Its advantages and disadvantages in a globalized world

A new challenge for the Euro-American economic relation


Research Paper (undergraduate), 2016
15 Pages, Grade: 1,0

Excerpt

LIST OF CONTENTS

1. INTRODUCTION

2. OBJECTIVES

3. US & EU. SOME KEY FIGURES ON THEIR MUTUAL TRADE RELATION

4. INSIGHTS ON THE ECONOMIC FRAMEWORK AND THE NEED FOR TTIP

5. DEGREES OF ECONOMIC INTEGRATION

6. ADVANTAGES AND BENEFITS OF TTIP
6.1. For the EU
6.2. For the US

7. DISADVANTAGES AND RISKS
7.1. For the EU
7.2. For the US

8. CONCLUSION

9. REFERENCES

10. INTERNET REFERENCES

LIST OF ABBREVIATIONS

Abbildung in dieser Leseprobe nicht enthalten

1. INTRODUCTION

The Transatlantic Trade and Investment Partnership (hereinafter TTIP) is a bilateral free trade agreement affecting the EU and the USA and its goal is to remove tariff, non-tariff barriers and legal processes as well as trade regulations to facilitate and intensify the exchange of goods, services and investment between the two partners. Negotiations started on the 8th of July 2013 in Washington and still go on, as many details, regulations and sectors involved have not been definitely agreed yet[1]. The debate remains, especially in the US, at the governmental level, as most of the US citizens do not even know of its existence. However, in the EU member states, the debate has been on the media for a while now with both, defenders and detractors, using a myriad of economic estimates and scenarios supporting their respective arguments.

illustration not visible in this excerpt

IMAGE 1: Introductory diagram[2].

If other forms or superregional trade integration forms –with different characteristics and degrees of economic integration- have already been in place in the world since many years ago, the economic size and global influence of the two candidates willing to subscribe this free trade agreement make the TTIP a decisive macro economic zone accounting for approximately 30% of global goods trade, about 40% of the world services, and nearly half of the global GDP[3].

2. OBJECTIVES

The main objective of this assignment is to analyze and critically discuss the need for such a FTA, its current framework, goals and advantages and disadvantages from the European and American perspectives in a globalized world.

The idea is to give the reader some insights to be able to understand this agreement and its clauses, going beyond the two parties official statements and enabling the reader to have objective elements of judgment to finally make up his/her own opinion about the suitability and eventually success of such a deal.

3. US & EU. SOME KEY FIGURES ON THEIR MUTUAL TRADE RELATION

The US and EU economies have many similarities which constitute the basis on which the success of the TTIP should lie. Both economies, at a GDP (PPP) of $17,4 trillion the American and $19,03 trillion the European, have similar size and represent, by far, the two biggest world economies. The difference in the GDP (PPP) per capita, at $54.629 the American and $37.607 the European, lies in the different income and development level in some of the new EU member states[4]. Also their HDI[5] and GINI[6] indexes are similar, being the HDI among the most developed in the world in both cases.

IMAGE 2: EU-US: mutual goods, services and inversions traded (inversion data only available from 2013)[7]

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With this common basis and sharing at a great extent some of the values and views on the degree of trade regulation, political system and economy liberalization, they are two complimentary economies which could mutually benefit from a bigger degree of economic integration without big cultural, social or political discrepancies to disrupt it.

The potential market resulting from the unification of standards and regulations would offer American and European companies more than 800 million consumers with high income, developed consuming habits and eagerness to buy.

4. INSIGHTS ON THE ECONOMIC FRAMEWORK AND THE NEED FOR TTIP

The EU and the US have always seen each other as commercial partners with shared strategic objectives and over the last decades have jointly sought ways to strengthen their commercial relationship. Proof of this are the historically tight commercial ties between the US and the then European Community dating back to 1953 when the two established their first diplomatic relations which led to the subscription in 1996 of the Transatlantic Declaration[8] (document in which both partners established their first basis for economic cooperation).

Although tariff barriers currently tax only between 4% and 7% of the whole US-EU commercial exchanges[9], it is the aspiration to the maximum degree of economic liberalization and particularly the existence of the so called NTB which hinder, through regulatory procedures and different production standards, the free circulation of all types of goods and services, which makes the TTIP a desirable agreement. Additional gains and savings could also appear after removing duplicated rules.

When the current economic situation and the effects of the last financial and banking crisis still affect the American and European societies with low or almost non-existent GDP growth rates[10], price deflation and alarming unemployment rates -especially in Southern Europe-, the TTIP promises some invigorating effects and renewed opportunities for both economies and labor markets that neither the EU nor the US politicians are willing to ignore.

Traditionally strong economies like Japan, Germany, UK, USA, etc., see helplessly now how new global players with still developing economies emerge strongly and rapidly become a serious thread to their dominance in the XXI century. It is the case of the BRICS, some southeastern Asian countries or Mexico, which are called to play soon a much more decisive role in the global economy than they did up to now.

TTIP is in such a scenario an incentive; it is a way to strengthen the own economic structures by reinforcing trade exchanges with a close ally as a way to counteract the progressive loss of decision power and economic strength in a rapidly changing world.

5. DEGREES OF ECONOMIC INTEGRATION

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IMAGE 3: degrees of economic integration[11]

In order to place the TTIP in its contemporary framework, it is important to point out that the examples of economic integration across the world are many. All of them seek economic benefit with the suppression of trade barriers with one or several partner countries. However, the level or depth of their integration sets a clear difference, as not every country is willing to exchange part of its commercial sovereignty for additional freedom to trade with its partners. The following 7 stages are, from the minimum level up to the maximum, the different steps towards complete economic integration[12]. The further upwards in the list the fewer examples can be found due to the level of complexity and integration required. Since the introduction of the Euro the EU is at the 6th level:

1. Preferential trading area (bi- or multilateral free trade agreements)
2. Free trade area (TTIP)
3. Customs Union (MERCOSUR)
4. Common market (EFTA)
5. Economic Union (EEU)
6. Economic and monetary union (EU)
7. Complete economic integration

6. ADVANTAGES AND BENEFITS OF TTIP

The main shared advantages for both the US and EU are more economic growth, more business opportunities and more jobs. After them come some additional and not less important benefits like lower prices for EU products in the US market and vice-versa, a wider offer available for consumers, unified standards across all sectors and the simplification to access the US or EU markets. Those are the advantages officially announced by both parties to support their arguments for the TTIP agreement.

Another common consequence for the EU and US is that exporting companies, the ones which are best equipped to compete not only at national but also at international level, would be the ones requiring more employees –as a direct consequence of increased trading opportunities- and would therefore attract labor increases to the most efficient sectors creating at the same time a self-feeding circuit.

6.1. For the EU

Data used by the EU to support the economic benefits of TTIP has been obtained from a study (financed by the EU Commission) performed by the CEPR -a pan-European research entity[13], which shows that sectors more likely to benefit from TTIP are the metal industry (+12%), processed foods (+9%) and chemicals (+9%) while the export increase of motor vehicles has been estimated in as much as +40% as a direct result of removing duplicated crash tests which after being done in the EU have to currently be repeated according to American standards to be able to enter the US market.

The CEPR study also indicates that the EU would also benefit from an increase of approximately +28% in exports to the US and a still unquantifiable increase in exports to the rest of the world. There would also be an increase in the European GDP by 0.5% annually (approx. €120 billion) and by €33 billion to the rest of the world in 2027, when the TTIP would have reached its maximum effects. According to them in the EU every billion € produced by trading goods and services creates demand for approximately 15.000 additional jobs[14].

Apart from this, to be able to access American public tenders on equal footing with American companies would also be a big advantage for European companies. The European Commission also considers that, as a direct result of the agreement, American products would be cheaper in the EU markets[15].

Concerning the labor market and the resulting increase in wages, although the European Commission announces that because of TTIP large amounts of new jobs will be created across all member states, the Commission also acknowledges that any figures in this regard, should be taken cautiously[16].

[...]


[1] European Comission (2015). About TTIP.

[2] Debating Europe (2015).

[3] European American Chamber of Commerce (2016).

[4] International Monetary Fund (2015).

[5] Milorad, K. (2009).

[6] OECD (2015).

[7] European Comission (2015). Countries and Regions.

[8] European Union External Action (n. d.)

[9] Mayer, R. (2014), p. 7.

[10] Turner, Z. (2015)

[11] Brackrog, B. (n. d.)

[12] Burges, S. (n. d.)

[13] CEPR (2015).

[14] Ibid.

[15] Ibid.

[16] Ibid.

Excerpt out of 15 pages

Details

Title
TTIP. Its advantages and disadvantages in a globalized world
Subtitle
A new challenge for the Euro-American economic relation
College
University of Applied Sciences Essen
Course
Master of Business Administration (MBA)
Grade
1,0
Author
Year
2016
Pages
15
Catalog Number
V437670
ISBN (eBook)
9783668787872
ISBN (Book)
9783668787889
Language
English
Tags
ttip, economics, economy, globalization, Euro-American
Quote paper
Santiago Mas (Author), 2016, TTIP. Its advantages and disadvantages in a globalized world, Munich, GRIN Verlag, https://www.grin.com/document/437670

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