TPP & TTIP: More Questions Than Answers

If you follow trade negotiations, then you know there are few more contentious than those for the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP).
 
On February 4, the World Bank’s International Trade Unit hosted Phil Levy, a senior fellow on the global economy at the Chicago Council on Global Affairs, who has been following both negotiations closely. Levy spoke with World Bank staff about the potential implications for developing countries as negotiations move forward in what he calls “bargaining among behemoths.”
 
At this point in the negotiations, one thing is clear: there are still more questions than answers.

The TPP started out as a relatively simple preferential trade agreement (PTA) between Brunei, Chile, New Zealand, and Singapore in 2005. Today, the expansion of this agreement into a 12-country Pacific Rim PTA is widely seen as an effort to develop a deeper set of trade disciplines where the Doha Round of WTO negotiations had thus far failed to do so.  
 
TTIP, for its part, is seen by many as the next step in trans-Atlantic trade ties. After years of tense negotiations following the global financial crisis, the idea is to bring EU and US partners back to the table, find some agreement, and rejuvenate lost enthusiasm. With both sides sharing similar market ideologies, the impetus is to get a deal done quickly—on “one tank of gas” as US Vice President Joe Biden has put it—unlike negotiations in the WTO which have taken longer.
 
Both potential agreements represent the evolution PTAs. With average applied import tariffs falling significantly over the last few decades, trade agreements are moving beyond narrow “GATT-style” agreements to cover deeper issues of trade integration such as investment, regulations, and services—the “high hanging fruit” of a well-picked field.
 
In other words, many of these agreements are seeking to establish new rules where there may be little or no precedent in the multilateral trading system. Resolving some issues, such as trade facilitation, appear to work in all parties’ favor. But others—intellectual property rights (IPR), competition and state-owned enterprises, labor laws, environmental protection, even currency manipulation—are sometimes more contentious.
 
Levy pointed out the “fanciful nature” of trying to boil these issues down to a bottom-line projection of expected economic gains or losses if these deals were to go into effect. We don’t know precisely what the final agreements will say or how they will interact. Plus, much of the impact is likely to be in the regulatory domain and other areas where it is more difficult to estimate the gains, Levy said.
 
Still, economists are trying. Petri and Plummer have estimated annual global income gains of $295 billion if the TPP were finalized, including US$119 billion for Japan and US$78 billion for the United States. Vietnam, according to the estimations, would enjoy the largest percentage gains at around 14 percent as it would likely expand as a manufacturing hub. All told, by 2025, if fully realized, the TPP could mean a 0.53% increase in global GDP.
 
But with gains would come losses for some countries, specifically those left out of the arrangement. Preference erosion and trade diversion are likely side effects of deals like these. Petri and Plummer estimate that by 2025, the TPP could mean losses of US$46.8 billion for China, and roughly $4 billion for India, Indonesia, and Thailand.

Erixon and Bauer have done similar work on estimated gains and losses with the TTIP. The results are much less stark, with static GDP gains of around 0.01 percent for the EU and 0.15 percent for United States. Yet both sides could benefit from dynamic gains in productivity and trade facilitation. Erixon and Bauer put these figures around 0.32-0.47 percent for the EU and 0.99-1.33 percent for the United States.
 
For non-participants-- especially those countries with existing PTAs with the United States or EU-- estimates are not as bullish. Argentina, Russia, and India could see welfare losses around 2 percent or higher, according to a 2013 analysis by Felbermayr et al.
 
The fact of the matter is these estimates mean little with so much still left unresolved in the negotiations. Some very big questions need to be answered before there can be a clear idea of expected impacts.
 
To start, will the Bali breakthrough rejuvenate WTO talks? Or will the TPP and TTIP signal the move to a negotiation model involving fewer players striking agreements on sets of issues rather than requiring all WTO members to agree? Precedents are already being set with smaller groups in the WTO having negotiated the government procurement agreement, the information technology agreement, and others.
 
Or is Bali being overhyped? Many have commented that the TPP and TTIP are thinly veiled attempts to carve out China, Brazil, India, and other emerging economies from WTO talks. Now that many lower- and middle-income countries have signed bilateral and regional trade agreements with major trade partners, smaller marginal gains mean a new “threat point” in negotiations. Will developing countries have a say in setting new trade rules or will they be on the outside looking in? Will preference erosion result in losses for these countries as mega-PTAs continue to redefine market access?
 
If the agreements are finalized, what will be done about accession? Is the goal to accommodate new members or to put pressure on those who don’t wish to participate? What can non-participants do to counter potential losses? What will the role be of alternative configurations, like the Regional Comprehensive Economic Partnership in Asia?
 
Where are the real sticking points in these agreements? For the TPP, is it rules of origin? Is it IPR? Is it stricter currency rules as have been pushed for by some in the United States? Or for TTIP, which regulations are harmonized and which remain off-limits? Genetically modified organisms (GMOs)? How can countries avoid the Balkanization of global markets through precedents? Or will the level of ambition in these deals eventually be their undoing?
 
And, finally, what if the negotiations fail? Will the United States be able to actually pass a deal through its Congress? Will countries turn back towards seeking multilateral agreement in the WTO? Or will they become discouraged and drop trade negotiations entirely, having failed to reach agreement among even a small group of countries?
 
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