After the 12 Asia-Pacific countries reached the Trans-Pacific Partnership Agreement (TPP), the US and Europe also made significant headway in the negotiation of the Transatlantic Trade and Partnership Agreement (TTIP), which could be more influential than the TPP as the trend indicates.
The TTIP is a comprehensive free-trade agreement between the US and the Europe. The TTIP aims at further simplifying the trade and investment rules between the US and Europe and speeding up the process of economic integration so as to build a US-European free-trade area in the end. The US and Europe started their TTIP talks in 2013 and had finished 11 rounds of talks by the end of 2015. Once the US-European free-trade agreement is reached, the agreement will cover half of the global economic output and will include commodities and services worth of nearly $1 trillion, accounting for over one-third of total world trade.
According to the 2013 Trade Policy Agenda and the 2012 Annual Report released by the USTR on March 1, 2013, by 2027 the economies of Europe and the US will increase by about 0.5% and 0.4% respectively. European annual income will increase by 86 billion euros ($115.8 billion) and the US new annual income will increase by 65 billion euros. (The latest estimate: The former will be 115 billion euros and the latter will be 95 billion euros).
From the perspective of the interests of both sides, the US-Europe TTIP will have a greater potential in promoting mutual service trade and investment, which are the key aspects and important areas. In service trade, the US is the world largest service trader and the EU is the world largest service trade union; the US service import from the EU and the US service export to the EU account in total for about 40% of the US service import and the export; the US and Europe have more room to further open the service trade area. In investment, the US companies have invested $2 trillion in the EU and the EU companies have $1.7 trillion of investment in the US. The two areas are major investment destinations.
In terms of European interests, as indicated by an independent European research report, the free-trade agreement will produce an 80% profit because the cost of administration is reduced and the procedures are simplified; that makes service trade and public procurement more liberalized. When the free-trade agreement is implemented, Europe will gain 119 billion euros every year and one-quarter of the EU households will have an annual disposable income increase of 545 euros. The EU export to the US will generally rise by 28%, an equivalent to 187 billion euros worth of goods and service trade. In the aspect of industry, the biggest trade increase will occur in the auto industry. EU auto exports to the US will go up by 149% and its auto exports to the other regions will increase by about 42% while its imports will expand by 43%.
The US seems to be attempting to realize its “return to Asia-Pacific” strategy through the development of the US-led TPP. If the development of the TTIP is promoted and a situation dominated by the US and EU is formed, the US and EU will no doubt intensify their coordination of Asia policies. And the US will accelerate the process of the TTP in virtue of the TTIP. The US is rebuilding a global multilateral trade system dominated by itself through a multilayered regional integration such as North American Free Trade Area, TTP and TTIP.
Of course, there exist big differences and difficult issues to negotiate between the US and EU.
First is the agricultural subsidy. Both sides have issues on agricultural subsidies, a stalemate for decades.
Second is the obstacle of the barriers of high technology protection. Neither side is willing to give up its tight protection and subsidy for domestic enterprises and technology in the high-tech area. Even in technical standards and accounting system, both sides have obvious differences. The US food and chemical standards are different from the EU standards. Investor-State Dispute Settlement is the biggest technical difference in the TTIP negotiations.
The third obstacle comes from the residual tariff barrier. The issue is how to further lower the product tariff and expand market access in service and procurement. The fourth obstacle lies in the border supervision. That is how to deal with the internal market supervision and the issue of domestic standards on both sides. Additionally, the US is facing the presidential election and the EU has the major challenges of internal differentiation and a lengthy approval process. However, both sides have a clear strategic intention and a very strong political will, thus the TTIP is expected to be signed in the end.
In view of this, once reached the TTIP will change the world trade rules, standards and patterns to a greater extent, a challenge for the emerging countries and the quasi trade union among the BRICS countries in particular. The US and Europe will set new rules in areas such as intellectual property rights and labor standards, which can surely raise the threshold for those enterprises intending to enter the US and European markets. On the other hand, because the free-trade area is open to the member countries and restrictive to the outside world, when the trade tariff is lowered between the US and Europe, a higher tariff will be formed against the outside economies and it will produce the effect of a trade shift. It also means that China will face EU competition in exports to the US and US competition in exports to EU.
Hence, China should make an active response. On the one hand, China should meet the challenge of international free trade with greater courage; accelerate its process of reform and opening-up; participate more actively in setting the new round of international economic rules and trade rules in particular and construct a Chinese version of a free-trade network both bilaterally and multilaterally. Meanwhile, China should also take the advantage of free-trade talks to force its marketization reform through a higher level of international trade rules.
On the other hand, the TPP and the TTIP will make China rely more on The Belt and Road Initiative and speed up that initiative. China must rely on the initiative to rebuild its economic cycle, fully tap the economic complementation among the countries along the Belt and Road Initiative, thus constructing a more comprehensive supply chain, industrial chain and value chain so as to promote the Asia-European economic integration and form a community of common interests.