Judy Asks: Is TTIP Really a Strategic Issue?

Trade agreements are not only about economics, they are also strategic—so said EU high representative designate Federica Mogherini during her hearing in the European Parliament on October 6. Being strategic means planning for the future. And if the Transatlantic Trade and Investment Partnership is not strategic, I wonder what is, for either the EU or the United States.

Europe is still unsuccessfully trying to get out of the economic crisis, while in the United States, the latest job numbers indicate that a slow but steady recovery is continuing. Against that backdrop, prospective economic gains of €119 billion ($150 billion) a year for the EU and of €95 billion ($120 billion) for the United States would be a true blessing.

But as Mogherini also said, there is more to the deal than economics. Most importantly, the successful conclusion of negotiations and the subsequent implementation of the pact would send a much-needed signal of transatlantic unity. As the world becomes increasingly complicated and challenging, it’s high time for Europeans and Americans to understand that the pooling of resources and the free circulation of ideas, people, and goods is the only peaceful way forward.

The Transatlantic Trade and Investment Partnership (TTIP) is an economic and commercial deal. If enacted, it will acquire strategic trappings by default. Other transatlantic innovations over the past two centuries have cemented the relationship in a strategic way. When the two sides of the Atlantic establish rules and practice, these become best practice in short order.

In the realm of universal values, the U.S., French, and Polish constitutions of the late eighteenth century, drawing inspiration from one another, laid the groundwork for the political and social compacts that are taken for granted today. The notion of “Western values” stems directly from this synthesis.

In finance, the Euro-Atlantic space has developed platforms and services that enable global money to flow. The rule of law, military muscle, and economic might of the North Atlantic made the dollar, euro, and sterling the world’s safe havens. The strategic value of this power can be seen in Russia today: the country’s economic health lies at the mercy of Western monetary governance.

TTIP will not become an “economic NATO” because the trade and investment deal targets an internal marketplace. Nevertheless, the partnership will introduce regulations and standards that may become best practice. Therein lies its strategic dimension.

The Transatlantic Trade and Investment Partnership (TTIP) is strategic because of the importance of the EU and U.S. markets for each other, and because the contracting parties comprise the core of the postwar economic and political order. Moreover, the declared ambition of the United States and the EU is to strike a deal that will extend well beyond traditional market access and deeply integrate their economies through common rules and standards, thereby writing the trade rules for the twenty-first century.

Whether strategic intent results in desirable outcomes is a different question. TTIP presents big opportunities but also poses two major challenges and one big risk. The first challenge is the enormous complexity of agreeing on regulations and standards across a treaty organization of 28 nations (the EU) and a federal system of 50 states (the United States). The second challenge is securing the necessary political will to push the negotiations through. The absence of trade promotion authority, a fast-track negotiating power granted to the U.S. president, on the U.S. side and competing national visions on the EU side speak to this concern.

The big risk—assuming TTIP and its close cousin, the Trans-Pacific Partnership between the United States and eleven Asia-Pacific countries, succeed—is that the EU, the United States, and third countries seeking to join these agreements will see the deals as viable alternatives to the WTO. That would undermine the existence of a crucial institution and would create a rift between advanced countries, on the one hand, and China, India, Brazil, and other rising powers, on the other.

Trade negotiators prefer to focus on pure economics and rarely like to admit it, but the truth is that all trade agreements are strategic. The Transatlantic Trade and Investment Partnership (TTIP) is no different.

TTIP is an agreement that is as much about strengthening the transatlantic alliance as about stimulating economies and trade. Russia’s recent behavior has certainly added to the strategic case, but that was true long before the crisis in Ukraine.

Why? Because TTIP is above all else a response to the rise of China. EU officials tend to be coy about saying that in public, but the United States is increasingly open about its motivations.

“U.S. trade policy is a central part of what may be the most consequential strategic project of our time: revitalizing the post-World War II international economic order,” Mike Froman, the U.S. trade chief, told an audience in Washington in September. “A series of seismic shocks – globalization, technological change, and the rise of emerging markes – have shaken the foundation of this order” in recent years, he said.

But the U.S. response is well under way, Froman added. “And trade is one of our most promising tools for that project.”

The Transatlantic Trade and Investment Partnership (TTIP) is strategic just as economic policy is a central plank of modern geopolitics. Economic ties are indispensable for the soul and music of modern power.

However, TTIP is not an “economic NATO,” a defense initiative to protect against other powers. Nor can TTIP change the eastward direction of the world economy. The center of economic gravity and global economic attention are already moving from the Atlantic to the Pacific. In the United States, there is far more political energy coalescing around the Trans-Pacific Partnership (TPP) with eleven Asia-Pacific nations than around TTIP.

TTIP will be won or lost on its economic merits—its capacity to create jobs and growth. None of this contradicts the fact that there are benefits of TTIP that go beyond economics. A successful TTIP will generate more economic cooperation between the two partners. It is also an initiative that can invigorate global economic cooperation.

Trade policy runs on two sentiments: profit and fear. In the past decades, far too many countries, especially big emerging economies, have comfortably avoided new liberalization in the WTO because they haven’t feared the alternative. Yet if the alternative to global liberalization is TTIP (and TPP), then the cost of frustrating global cooperation will be bigger for intransigent countries.

All trade is strategic. If the EU and the United States can agree to a partnership that meets expectations and interests on both sides, then the Transatlantic Trade and Investment Partnership (TTIP) will make an important strategic statement to the world. Not only will it underwrite the transatlantic economic partnership, but it could also reinvigorate confidence in the West after the financial crash of 2008.

One must therefore take lightly claims that TTIP is just another trade partnership; it is primarily designed as a response to the economic rise of China and to check the relative decline of the United States and the EU. The Trans-Pacific Partnership being negotiated between the United States and eleven Asia-Pacific countries should be seen as the other side of the same coin.

TTIP could also become the economic equivalent of NATO. Just as the transatlantic alliance serves as a security umbrella for its members, so TTIP could serve as an umbrella for rules-based market capitalism.

Both sides will need to make sacrifices to get a deal signed, however. In this respect, the TTIP negotiations reflect differing views about social and economic organization. TTIP is strategic because of what it seeks to achieve, but both the EU and the United States first need to make a number of key strategic decisions to make the agreement happen.

The Transatlantic Trade and Investment Partnership (TTIP) is about far more than just trade. It is about repositioning the United States and the EU for the world of today, not the world of yesterday. TTIP is a values-based, rules-based initiative likely to strengthen Western economic, security, political, and social cohesion and confidence; to reinforce the U.S. commitment to Europe; to strengthen transatlantic energy ties; and to increase the attractiveness of the Western model.

The proposed partnership will enable the United States and the EU to remain standard makers rather than standard takers, to engage rising powers more effectively, and to strengthen and extend basic norms and principles guiding the international system. TTIP is not an “economic NATO,” but it could be a second transatlantic anchor.

TTIP can also be a powerful instrument to ensure that standards informed by basic values shared across the Atlantic can advance globally. The stronger the bonds among democratic market economies, the better their chances of including rising partners as responsible stakeholders in the international system. The weaker those bonds, the greater the likelihood that rising powers will challenge this order. TTIP is less about containing such powers than about the terms and principles guiding their integration and participation in the global economy.

If the Transatlantic Trade and Investment Partnership (TTIP) were just another item on the list of the EU’s ambitious beefed-up free trade agreements, it could hardly be called “strategic.” But that is not the case: a fully fledged TTIP would have a profound impact, far beyond the elimination of tariff barriers or quotas.

If implemented, the partnership would integrate the market rules, norms, and standards of the world’s two most advanced economic regions, which represent the prime destination for global exports of goods and services. That is nothing less than a game changer in global trade negotiations.

TTIP would limit the ability of Europeans and Americans to conduct differing agreements with third parties. It would constrain Washington’s ability to use economic relations as an instrument of its global strategy because Brussels would be forced to follow suit or face losses for European companies. The EU would benefit from reinforcing America’s stake in Europe, but this would come at the price of the EU’s pursuit of its own interests, for example in case of political conflict in East Asia.

A full-scale agreement would move the world trade regime closer to major trading clusters and away from a global scheme. Market access would be the leverage to secure norms and standards. If principal actors in Asia or elsewhere view TTIP as an attempt to cement Western dominance over the international system, the partnership will generate political transaction costs and countermoves.

The Transatlantic Trade and Investment Partnership (TTIP) is the last geopolitical opportunity to spur the growth of jobs across the Atlantic. This should be enough to spark negotiations and get the deal signed pronto. Moreover, as international affairs professor Charles Kupchan writes, “economic renewal promises to help foster political renewal, better enabling the West to remain an anchor of liberal values and practices — of paramount geopolitical importance as power shifts from the developed to the developing world.”

Yet from Iraq to Libya to Hong Kong, the world no longer believes in “the West.” A transatlantic trade treaty, though it may irk a few leaders around the world, would be a powerful sign the Western alliance is alive and kicking. To China and Russia, it would be a reminder that international trade and multilateral negotiations are still a powerful, viable tool—better than wars of attrition or naval blockades.

Instead, the negotiators pick at every single issue, pondering over minutiae as if we were living in ordinary, boring times. So TTIP is indeed a strategic issue—not so much for what it contains, although that is a lot, but for what it means as a symbolic icon of the decline of the West.

Yes, the Transatlantic Trade and Investment Partnership (TTIP) really is a strategic issue, for three reasons. First, the agreement was designed as an endeavor not only to revitalize the transatlantic economies but also to sustain the West’s ability to set the norms of international trade at a time when economic power is gradually shifting to the East. In other words, TTIP is set to be a core component of the West’s “soft power,” replicating its privileged role as an agenda setter.

Second, TTIP, in combination with the Trans-Pacific Partnership among twelve Asia-Pacific nations, is set to remold the international economic order around a Western axis and therefore hinder the growth of China’s economic influence. TTIP is an instrumental part of this reshaped global economic order in which China is seen as the main competitor and hence excluded from these megaregional trade agreements.

Finally, the strategic nature of TTIP also derives from the sustained efforts to make this initiative succeed. In the past, free trade between the United States and Europe remained elusive because the parties could not overcome existing barriers. This time around, with TTIP, there is a newfound willingness to tackle these obstacles. TTIP cannot and will not be allowed to fail.