TTIP - Free trade explained

Free trade strengthens relations between states. The principle is age-old. The oldest free trade agreement that is still in effect was signed in 1373 between Portugal and England. The deal was sealed when the Portuguese King John I. married Philippa of Lancaster.

Germany also has a long tradition of free trade. In 1241, a number of ocean and riverside cities founded the Hanseatic League. Trade became easier and safer.

Economies can collapse when states seal their markets and prevent free trade. This happened in the late 1920s. Trade relations between the USA and many European countries broke down. That was bad for everyone.

The largest free trade zone in the world is currently the European Union. Within this area, people, goods and services can move around freely.

In Western Europe, free trade has led to lasting peace. After the Second World War, France, Italy and Germany decided to cooperate in the production of steel and coal. This was to make a war between them impossible. It laid the foundation for the EU.

At an international level, over 1000 free trade agreements have been signed since the 1950s. Most of them are between OECD states and newly industrializing or developing countries.

Customs duties restrict trade. States use them to protect domestic industries that are less profitable than their foreign competitors. Such duties seek to eliminate competition.

States can also decide to favor local bidders when they hand out public contracts. They may exclude bidders from other countries.

Different standards for products also restrict free trade. For example, Germany uses the DIN standard while the US has various standards. Varying norms for pharmaceuticals, sockets and food make it difficult for foreign companies to sell their goods.

Free trade agreements exclude countries that are not party to the treaty. They continue to face high barriers to sell their goods.

The USA and EU are the two largest economic areas in the world.

So far there is no free trade agreement between the two continents. Only the World Trade Organization (WTO) and individual agreements have regulated trade.

Negotiations within the World Trade Organization (WTO) are tough. The latest round of negotiations began in 2001 and has still not been concluded.

The great economies do not want to wait for the World Trade Organization (WTO) any longer. They want to conclude agreements among themselves. This gave rise to the Transatlantic Trade and Investment Partnership (TTIP).

TTIP aims to remove as many trade barriers as possible. Since customs duties have been largely eliminated, the agreement seeks to give all companies market access. Industry standards are to be recognized in every country. This could mean that the DIN standard is valid in the US and US standards are recognized in Germany.

In the future, states hope to develop common regulations to approve goods for sale within the entire TTIP area. This would be entirely new. The agreement would eliminate as many trade restrictions as possible.

In 2007, the German chancellor Angela Merkel wanted to foster trade between the USA and EU. She commissioned a task force to find new ways of facilitating trade. At the time, Merkel was president of the EU Council.

The initiative became concrete in 2011. The EU Commission and USA established a working group with civil servants from both sides. They discussed how a free trade agreement might look. The civil servants considered which issues could be negotiated.

The EU governments liked the proposals. In 2013, they ordered the EU Commission to open negotiations with the USA. The new agreement was to be called the Transatlantic Trade and Investment Partnership (TTIP). Since March 2013 the two delegations have met eight times. Negotiations are ongoing.

The overarching goal is that companies can engage in global competition.

Trade barriers will be eliminated with the aim of reducing the cost of products. This would increase profits for companies that export. Ideally, these companies would raise their employees’ wages or hire more people.

The agreement also has a political dimension. It is supposed to be a model for treaties with China and other countries. Such negotiations are already underway.

In the past, only experts dealt with free trade agreements. Few people were interested in the negotiations, only those involved could read the agreements. This is how the negotiations for TTIP began. The talks take place behind closed doors.

Initially, the EU only released general summaries of their positions in the TTIP talks. But when secret documents became public that detailed the EU’s directions as to what the Commission should negotiate, the Commission came under pressure. It only released a portion of the documents to the public. Officially, that makes TTIP more transparent than any past trade agreement. The US hardly releases any information.

Public discussions on TTIP revolve largely around chlorine chickens and international courts of arbitration. But there is much more going on in the negotiations. In total, 24 working groups are debating on specific measures to facilitate trade in different sectors.

There are also talks about establishing international courts of arbitration to ensure legal protection for investors.

In the future, standards for goods are to be made more comparable. This is supposed to be handled by a new body which will ideally propose common standards.

Both sides agree that customs duties should be largely eliminated. Besides that, they want to get rid of “senseless” double standards. But what qualifies as senseless? That is a point of argument.

It is expected that both sides will recognize norms for goods that are already very similar. An example is blinkers on cars. That way, companies will not have to verify the safety of their products twice.

There are significant differences on most issues. For instance, the EU says that health standards cannot be reduced. The US says the same. But closer analysis shows that their standards are different.

Until now, both sides agreed on the establishment of arbitration courts. This has been mandated in many other agreements. But the situation has changed. People have expressed significant doubts. One point of criticism is that arbitration courts could be influenced by commercial interests. In the EU, some would like to renegotiate.

Public contracts are also a point of debate. Not only in the EU, but also in the US local companies can receive special support. This is supposed to support the local economy and create jobs in the area. Competition from abroad could eliminate this protection.

Banking and insurance regulations are also disputed. The Europeans want to establish more common standards than the Americans. Regulations for US banks are stricter than for European banks.

The car industry could reap the greatest benefits from TTIP. There would be no longer a need to conduct safety tests twice and seek approval from two different authorities. Cars could be sold to local authorities in the USA.

Small and medium-sized businesses would have less paperwork, making it easier for them to sell their goods on the US market. That would save money. For example, the agricultural industry would like to sell a certain type of apple in the US. At the moment that is prohibited. Banks also hope to make better business.

There are hopes that free trade will increase profits and secure jobs, or even create new ones.

Companies that have only been active on their own country’s market would face new competition. Until now, they were protected by customs duties and other trade barriers. On both sides of the Atlantic, trade unions fear a vicious circle if companies try to lower production costs. They are afraid of wage reductions and even job losses if companies are forced to shut down.

Local authorities are also afraid. Particularly in the EU, they fear that public companies could be in danger. They are worried about privatizations. In the USA, authorities fear they might face difficulties in handing out public contracts to local bidders. Until now, such contracts could be used to support the local economy.

Environmental and consumer organizations worry that common regulations for setting standards for goods could undermine democratic processes. Companies could use their lobbies to influence decision-making, leading to a reduction of standards. That might extend to the obligation to label genetically modified foods.

Many fear that companies could use arbitration courts to torpedo laws they dislike.

The European banks do not want to be subjected to the stricter financial restrictions found in the US. That would loosen requirements for banks in the US which are relatively strict.

The fans: industrial associations on both sides are in full support of TTIP.

The official proponents: all EU governments are in favor of TTIP. In the US, the Democratic president Barack Obama is driving for free trade. He has more support on the issue from Republicans than from Democrats.

The skeptics: trade unions, consumer organizations and the Social Democrats in the European Parliament have significant reservations. But they would support an agreement if it took their ideas into account.

The opponents: in Germany and Austria, significant resistance against TTIP comes from nongovernmental organizations. Over 300 organizations have started a European-wide campaign. They call for breaking off the negotiations. The German Green Party supports these groups. The German Left Party is against the treaty because it will only accept global free trade.

Only civil servants are directly involved in the negotiations. On both sides there are around 200 negotiators in various working groups. In some groups there are more Americans than Europeans, or vice versa. The negotiations are coordinated with the governments.

Lobby organizations are not directly involved in the negotiations. But the EU Commission and the US both coordinate their positions with lobby groups.

When negotiations are over, the EU governments must initially approve the treaty. After that it must go through the European Parliament. It is currently unclear whether all individual EU parliaments will then have to approve the treaty. In the US, the process depends on whether the President receives permission from Congress to negotiate the agreement without input from Congress. In that case, Congress must only approve the final treaty.

Negotiations are taking place in the shadow of the 2016 US presidential race. Both sides want to finish negotiations by early 2016 at the latest. Only then could the treaty be ratified by the US before the November election.

If the negotiators do not reach an agreement before then, TTIP will have an unclear future. It will depend on who becomes the next US president. The negotiation and ratification process would take significantly longer.

Generally speaking, the grand coalition is in favor of free trade. The Christian Democrats (CDU/CSU) support TTIP without reservations. The Social Democrats (SPD) are now split. Some party members call for substantial changes in the ongoing negotiations. It is unclear whether the SPD would approve the treaty in the German parliament if their demands are not met.

TTIP is part of a global development. Apart from TTIP, the US is also involved in negotiations for a large-scale agreement in the Pacific area (TPP).

The EU, USA and 21 other countries are currently negotiating an international treaty on services (TiSA). There is some overlap with the issues negotiated for TTIP.

The EU is currently involved in over 20 free trade negotiations with India, China and other countries.