TTIP: With Or Without? The Impact Of TPP On TTIP Negotiations And Why Poland Should Be Concerned About It.

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What is TPP?

The Trans-Pacific Partnership (TPP) is a trade agreement among twelve countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam which liberalises trade and sets consistent rules to make it easier to do business across the region.

TPP is meant to set a new standard for trade and investment in one of the world’s fastest growing and most dynamic regions.

The twelve countries comprise nearly 40 per cent of global GDP, a market of more than 800 million people, and around one third of world trade.

Now their goal is to enhance shared prosperity, create jobs and promote sustainable economic development in the region.

The United States government has regarded TPP as a companion agreement to the proposed Transatlantic Trade and Investment Partnership (TTIP), a broadly similar agreement between the United States and the European Union.

The agreement was signed on 4 February 2016 in Auckland, New Zealand, after over five years of negotiations, but has not entered into force yet.

Paweł Zerka

About Paweł Zerka

Paweł Zerka is Director of Research at demosEUROPA-Centre for European Strategy: a Warsaw-based independent think-tank, discussing foreign policy of the European Union and its key Member States. He is a political scientist, economist and an expert in the area of EU foreign policy, with particular focus on the global trade policy and transatlantic relations (EU, US, Latin America). He is the author of the „Notes from Bogota” blog (www.notyzbogoty.blogspot.com, in Polish only) dedicated to political and economic affairs of Latin America. Twitter: @PawelZerka

In October 2015, the Trans-Pacific Partnership (TPP) negotiations were completed.  Since then the context of the Transatlantic Trade and Investment Partnership (TTIP), which is being negotiated by Washington and Brussels, has changed. It is hard to state, unambiguously, whether an American ‘no’ to the ratification of TTP would be a positive or a negative message for Europe. However, one can say that, despite a formal distinction of the two processes, the future of TTP will have a measurable influence on the engagement of both Americans and Europeans in the TTIP negotiations. Poland, in particular, should be interested in the success of the transatlantic initiative.

There are fundamental differences between TTIP and TPP. TTIP refers to bilateral relations between the EU and the US, while TPP deals with multilateral relations, encompassing 12 countries. For the time being, TTIP remains closed to third parties, whilst TPP has been designed as a living agreement, allowing for both future growth and expansion of the areas included in the treaty.

In the last two years, it was possible to view TPP and TTIP as a sort of strategic competition between the Pacific and the Atlantic; one of the “first come first served “variety.  However, now that the TPP negotiations have been finalised, this changes the geopolitical context dramatically. Now, talks between the Americans and the Europeans are being held, after the initial success of this competitive initiative. The only thing that is missing, in order to cross the t’s and dot the i’s, is a ratification of the agreement by all of its signatories and, most importantly, by the United States. There is no doubt that this increases the pressure on TTIP. Considering that the negotiations between the EU and the US have come so far already, the alternative to ‘a world with TTIP’ is not ‘a world without TTIP’ but rather ‘a world where TTIP failed.’ Neither future transatlantic collaboration nor the consistency of the European project is helped by having this spectre hanging over it.

The key mechanism, in which ‘the Pacific’ has an impact on ‘the Atlantic’ refers to the way the TPP process translates into a commitment from the Americans and the Europeans to the negotiations. TPP’s future is not certain yet and once again it is difficult to definitely predict whether TPP’s failure would be for the good or for the bad where Europe is concerned.

There is a 50 percent probability that the final scenario will be ‘TPP plus TTIP’. The potential success of TPP should ensure that the Europeans’ remain determined to close the deal with the Americans inside 2016, thus preventing the US directing an economic and geopolitical pivot towards the Pacific.

German Chancellor Angela Merkel’s strong support for TTIP is proof of the EU’s growing dedication. She was the first example of the leader of a key European country supporting TTIP so eagerly, despite all the controversies that were tied to the initiative. In Europe, there is an increasing awareness that the TTIP negotiations have to be completed this year; otherwise we will have to wait for at least a few more years, if not longer. At the same time both sides of the  Atlantic hold the opinion that only a ‘full-blooded’ deal, and not a “light version” of TTIP, should be agreed. One can assume that success with TPP would allow the US to approach the TTIP negotiations in a more relaxed frame of mind. In such a case, the success of the negotiations would very much depend on Europe.

There is also a 25 percent probability that another scenario could be ‘TPP minus TTIP’. This is a far less optimistic proposition for Europe. There is a danger that the TTIP negotiations will stop once TPP has been ratified. This would, in effect, cement the transfer of the global economy from the Atlantic to the Pacific and would mean that the global economy’s management centre would also move there. The EU’s free trade initiatives in Asia and the Pacific could only slow the process partially, but would not stop it entirely.

Finally, there are two equally likely marginal scenarios (with probabilities of around 12.5 percent) that describe a world where TPP was not ratified by the Americans. In that case, completing TTIP whilst still inside 2016 would be just as likely as not finalising the negotiations: a fifty-fifty scenario.

In our opinion, the benefits for Poland, as compared to the rest of the EU, are higher than average, economically, politically and strategically. That is why the country should make sure the negotiations are completed this year, and should not allow them to fall into the black hole that is the new US administration’s acclimatisation process and the European’s election marathon (e.g. presidential elections in France and federal elections in Germany, in 2017).

The first reason is economic in nature. The prospect of a closer integration of the European and the American market, and its subsequently easier access to global markets, is happening at just the moment when Poland needs some new developmental stimuli and which will be critical if Poland is to evade the “modernisation trap.’ For the last two decades, these stimuli have been provided by the integration process with the European market.

It was access to the single market, rather than an influx of structural funds, that helped Poland’s economy to grow so rapidly over the last ten years. Not only did export and foreign direct investment increase but Polish products and services also became more competitive.  This was mainly due to the influx of new technologies, of modern business standards becoming increasingly popular and the benefits of scale that Polish companies achieved thanks to the access to the absorptive EU market.  Additionally they began to integrate their sales into global value chains, through their European partners.

It is true that there have been some unsettling phenomena occurring at the same time, such as the negative international investment position of Poland which was caused by the fact that a large chunk of revenue, generated by companies operating in the country, was transferred abroad. The Polish government needs to exercise caution, when addressing such problems, so that companies with Polish capital are able to continue to grow.  At the same time they should not discourage foreign investors to increase their investment in the country. If we take the historical experiences in Latin America and South-East Asia as references, we see that the most effective way of building a global position for domestic business is not an interventionist developmental policy or protectionism, but rather that the government provide assistance to domestic producers to help them conquer the most competitive export markets.

Poland is already making active use of its access to global markets. This is proven in the openness of the economy: the value of products sold abroad accounts for almost 80 percent and it is showing a growth trend. Foreign investment is equally important. In 2014, Poland was in the world’s top twenty as far as inward FDI was concerned ($14 billion, after France). The total value of FDI inward stock reached $250 billion in 2014, which was twice as much as in the Czech Republic and Finland, and five times more than in Slovakia. At the same time; according to the UNCTAD’s World Investment Report, issued in 2015, the value of announced green field investment reached $7.5 billion in 2014, roughly as much as in Germany and France in the same year. That was an impressive result, which ranked Poland fourth in the EU.

At the same time, Poland is exceptionally focussed on Europe. Almost 90 percent of our products are sold in the European market. This poor diversification is demonstrated by a relatively ratio of concentration of trade partners; high when compared to other European countries. Moreover, although Poland has made a huge progress in penetrating export markets, in the last decade, the country still lags behind the leading economies in that respect, e.g. Spain.

Within this context, TTIP offers Poland and exceptional opportunity to enhance its internationalisation and globalisation. If Polish producers and investors are to ‘become unglued’ from Europe, the global search needs to be started, in earnest, for places where law and order, predictability, intellectual property rights and business security prevail. Notwithstanding the current debate about how different the European and the American models of capitalism are, that location is easier to find in the United States than anywhere else across the globe.

Further to all the economic arguments for Poland supporting TTIP, there are two important political aspects to consider.

Firstly, betting on TTIP would make sense to Poland because it is interested in strengthening its alliance with the US, for geopolitical reasons. By this I do not mean merely increasing the chances of “success” at this year’s NATO summit in Warsaw, which could end in a decision to increase NATO’s military presence in Poland. It is also important to bolster trust in Poland, among its European and American economic and political partners, whose confidence in Poland’s political and investment stability has weakened in the recent weeks. One must keep in mind that, from their perspective, the situation in Poland translates directly into their risk assessments for the entire Central and Eastern Europe region.

Secondly, TTIP could become a constructive means of redirecting the European integration process towards the economy and indeed towards all economic aspects not only related to the Eurozone alone.  This is an aspect of integration where Europe has firm strengths. If the EU were to achieve this great success in trade policy, then — taking into account the ambitious plan set out in the European Commission’s Trade for All strategy last year — it could become Brussels’ new and principle specialisation.

It would also be a way of reducing the growing focus on Eurozone issues, which aligns with the interests of Poland and the United Kingdom, whose remaining in the EU is important to Poland. It would be a comprehensive alternative to all the misleading debates about whether there should be more or less of Europe. Such debates may lead to the misconception that there are two alternatives: a federation or the fall of the European Union. In the current circumstances, both options are equally unacceptable. That ‘integration pause’ could be replaced by TTIP; the EU’s trade agenda offers a broad scope for new integration logic, going beyond the simple black and white opposition of federation vs. fragmentation.

TTIP, just as any other trade agreement, can evoke controversies. It is good that civil society is looking at over the negotiators’ shoulders to ensure they don’t agree with solutions that could prove detrimental to the environment, labour standards, or democracy. A good agreement calls for strong democratic legitimisation. One cannot expect that Americans, as experienced and sophisticated negotiators, will resign from their offensive and defensive trade interests easily. Instead of relying on others, Europeans should start counting on themselves.

That doesn’t mean that TTIP is a bad idea. On the contrary, this statement is far from that opinion. Historical examples show that the fear of opening markets up to competition from outside is natural: it was already the case in Europe, in the 1980s and 1990s, as countries prepared themselves for the creation of a single European market. Poland has also experienced that fear, before joining the EU in 2004. In most cases the fears turned out groundless, and in other cases, highly exaggerated. It is true that these cases cannot be directly related to, or compared with, the current situation, especially taking into account the fact that TTIP and other ‘mega-agreements’ have an entirely new character. However, there is one key similarity which is that Europeans and Poles have already faced something completely ‘new’, and which was hard to foresee, in 1992 and 2004. The risk paid off.

Both, the past and currents situation could be seen through the viewpoint of a change in the paradigm of international trade. Thomas Kuhn noted (in the unrelated context of the scientific revolution) that ‘a success of a certain paradigm (…) is initially mainly a promise of a success.’ The case of international trade is quite similar. It is impossible to calculate all the profits and losses resulting from TTIP or TPP, when taking into account the constantly changing character of globalisation, as well as the ground-breaking nature of trade agreements. Rather we should speak of benefits and risks. Eventually, we’ll need to believe in that promise, without a full guarantee of success and after having first made sure that all the important aspects has been granted.

Even if TTIP did not go ahead, Europe would still have to adapt to the global rules, sooner or later if they wished to remain prosperous and internationally competitive, however the difference would be that these rules would have been worked out by others. The adoption of the Agreement does not counteract the potential (perceived) threat from TTIP to the autonomy of the EU’s (or its member states’) creation of future standards in the Old Continent, or the detriment to movements in regional trade among member states, including Poland. In fact it only brings the risk nearer.

Europe is struggling with a number of problems. TTIP offers support for a successful resolution of at least some of them. At the same time, it is relatively difficult to list any problems that Poland and/or the EU are currently facing which could be solved without TTIP being in place.

 

The article (here in an abridged version) was originally published on demosEUROPA’s web page.

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