Global Economy
March 18, 2016

A View from Europe: Why Europe is Watching TPP Closely

By Kathryn Hauser

As American and European negotiators met last month in Brussels for the 12th round of US-EU trade talks, known as the Transatlantic Trade and Investment Partnership (TTIP), many Europeans were looking east – to the recently concluded Trans-Pacific Partnership (TPP) – for clues about the future of global trade and the impact of TPP on Europe.  Here are five reasons Europeans should be keeping an eye on the TPP and what it means for the EU.

First, the Size and Scale of the TPP Agreement

The agreement covers 40% of the global economy, one third of international trade activity, and 800 million people.

Second, the Economic Facts

The Asia-Pacific region is now the world’s center of economic gravity, holding an increasing share of world production and promising a fast growing consumer market.  By 2030, 5 billion people in the world will have entered the middle class.  Two-thirds will live in Asia.  Globally, they will spend $56 trillion each year. (for more on this topic please click here)

According to the IMF, economic growth in the Asia-Pacific, excluding China, is expected to continue the strong trajectory. Asia’s gross domestic product (GDP) growth is forecast to reach 5.4% in 2016.  By contrast, the European Economic Forecast issued earlier this month by the European Commission notes that growth in the euro area in 2016 is expected to continue, but the recovery is slow, both in historical perspective and compared to other advanced economies. GDP in the euro area is forecast to expand by 1.7% compared to 1.6% in 2015, and is projected to pick up to 1.9% in 2017.

The US is building its Asian and Latin American ties to stimulate additional economic growth, strengthen strategic relationships, and expand markets for American goods, services, investment and innovation. This presents a challenge as well as an opportunity for the US-EU relationship.  A strong TTIP agreement would enable the US and EU to meet this challenge.

Third, Strategic Leadership

President Obama and Trade Representative Froman have stated quite clearly that TPP is a manifestation of America’s pivot to Asia.  The USTR’s public statements note that, “TPP is a powerful signal of our commitment to the region, and demonstrates that America remains a leading force for prosperity and security in the region.”

The President and his trade team are now turning their full attention to completing negotiations with the European Union in the TTIP, with a view to wrapping up the talks before the end of the President’s second term in office.  The conclusion of the TPP agreement makes progress on TTIP very timely.

Fourth, Global Supply Chains

The TPP agreement sets new rules for global supply chains.  Examples of these rules are:

  • State-Owned Enterprises:  Require that State-owned enterprises not benefit from preferential treatment intended to prevent unfair competition with American (and other private sector) businesses and workers.
  • Open Internet: Preserving a free and open Internet across the region, including through freedom of data flow, bans on ‘forced localization’ of servers and technologies, and more effective protections for the security and privacy of users.
  • Rule of Law for Labor, the Environment, and other Important Matters:  These rules will require member countries to implement legislative, regulatory and transparency reforms. For example, the labor consistency plans for Vietnam, Malaysia, and Brunei are intended to provide specific and binding rule of law blueprints for the ways in which these countries will meet their labor obligations under TPP.

Fifth, Competition 

In 2014, scholars at the European Centre for International Political Economy wrote:

“The TPP will change the competitive relation between European and American firms as far as access to the Asia-Pacific market is concerned.”  The EU has traditional free trade agreements in place with certain TPP countries such as Mexico and Chile and is negotiating agreements with Canada, Japan, Malaysia and Vietnam. Currently there are no trade agreements with Australia and New Zealand where stiffer competition for market share, access and exports to the TPP exist.

André Sapir, Senior Fellow at the Bruegel think tank, wrote: “The more successful TPP will be in liberalizing trade among participating countries, the more likely will be the damage for EU trade with TPP countries, and the greater, therefore, the incentive for the EU to conclude bilateral trade deals with TPP members such as EU-ASEAN, EU-Japan and TTIP.”

By Kathryn Hauser

 

Additional Reading:

http://www.atlanticcouncil.org/blogs/new-atlanticist/european-official-goes-to-bat-for-ttip

http://carnegieeurope.eu/strategiceurope/?fa=62655

http://www.gmfus.org/blog/2015/06/16/tpa-and-tpp-end-road-or-just-another-bend