Industry and trade

Minimizing Asian losses from the TTIP: A European view

Minimizing Asian Losses from the TTIP: A European View

Like the Trans-Pacific Partnership, the Regional Comprehensive Economic Partnership, and the Free Trade Area of the Asia-Pacific, the Transatlantic Trade and Investment Partnership (TTIP) between the European Union (EU) and the United States (US) is a second-best approach to trade and investment liberalization compared to a global agreement. A global agreement is not within reach, and thus Asia, as a non-beneficiary, will incur trade losses similar to the losses that Europe would incur as a non-beneficiary of an Asia-Pacific agreement on free trade. Estimates for the People’s Republic of China and India, for instance, of the potential decline in imports and exports from a full dismantling of tariff and non-tariff barriers between the EU and the US, are in the range of 2%. These are gross effects that can be reduced if Asian exports are able to benefit from higher TTIP-induced growth in the transatlantic region. What should be done to minimize the unavoidable discrimination effects on Asia from binding bilateral agreements between the two Atlantic trading partners? I suggest four measures.

First, non-beneficiaries should have a trustee sitting at the negotiation desk defending their interests under Article 24 of the General Agreement on Tariffs and Trade and Article 5 of the General Agreement on Trade in Services. The two articles impose that the rights from World Trade Organization (WTO) membership should not be impaired due to bilateral and regional free trade areas and customs unions. This trusteeship should be in the hands of the WTO and its Committee on Regional Trade Agreements. The committee should become the mailbox for concerns from Asian economies about the impairment of their rights, and, preferably, the WTO should have the power to veto measures that have a significantly adverse effect on these economies. It could borrow such power from competition laws with the so-called “effects doctrine.”

Second, it is in the self-interest of the two TTIP parties not to depreciate the value of the many bilateral agreements that the EU and the US have already concluded with Asian economies. This can be achieved if the two parties, to the largest extent possible, embark upon the principle of mutual recognition of standards under an open mutual recognition agreement (MRA). Then, Asian economies could choose between a US or EU standard as a domestic standard that would be accepted in the territory of the other party. An Asian economy’s standard, mutually agreed upon in the bilateral agreements, could then perhaps also be accepted in the TTIP region. This leads to the third suggestion.

The EU and the US should transfer the core of the regulations agreed upon in their bilateral agreements with Asian economies into the TTIP. So far, this applies only to the Republic of Korea, which has agreements with both TTIP parties, but more agreements are currently being negotiated. This would reduce the “noodle bowl” problems of membership overlap and redundancy of content.

Fourth, the two TTIP parties should declare their applied tariffs as “binding.” Though the “binding overhang,” the difference between higher bound tariffs and lower applied tariffs, is by far not as large in the TTIP parties as it is in developing economies, this would be a measure of trust building and would be a desirable parallel track of intra-TTIP and extra-TTIP trade liberalization.

Rolf J. Langhammer

About the Author

Rolf J. Langhammer was Vice-President of the Kiel Institute for the World Economy from October 1997 until August 31, 2012 and Professor at the Kiel Institute. He retired from the Vice-Presidency on August 31, 2012 but continues to work at the Institute. Mr. Langhammer has served as consultant to a number of international institutions (EU, World Bank, OECD, UNIDO, ADB), as well as to the German ministries of economic affairs and economic co-operation. His research covers international trade patterns, trade policies, regional integration and international capital flows.

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