Published on Let's Talk Development

An EU-US trade pact: Good or bad for developing countries?

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For a world weary of waiting for the WTO’s Doha trade round to conclude, even a bilateral trade initiative may seem like a boon, especially when “bilateral” covers half of the world’s economy. But there is a serious downside:  the deal could hurt developing-country exporters unless the EU and US make a special effort to protect their interests. 

The feature of the proposed pact that elicits the most excitement – its focus on regulatory barriers like mandatory product standards – should actually incite the greatest concern. Given low tariffs in the EU and the US – less than 5%, on average – further preferential reductions will not seriously handicap outsiders. But, when it comes to standards – such as those governing safety, health, and the environment – the market-access requirements are brutal and binary: either you meet the established standard or you do not sell.

As a result, third-country firms’ options will depend on how TTIP standards are established: through harmonization (adoption of a common standard) or mutual recognition (acceptance of goods that meet one another’s established standards).  Fears about a race-to-the-bottom (likely in the EU) may lead the harmonized standard to be more stringent than the original standard in, say, the US.  Even though all countries would face the same stringent standard, it could end up being harder for developing countries to comply.  Also, if the TTIP excludes third-country firms from the mutual recognition policy, their competitiveness vis-à-vis European and American companies would diminish, hurting their exports. To read more, click here.


Aaditya Mattoo

Chief Economist, East Asia and Pacific Region, World Bank

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