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Sep 29, 2022

Future-Proofing Transatlantic Relations (IV): Time to Enhance Trade Relations

While there is little appetite on either side of the Atlantic for a revival of TTIP, both the EU and the US should work toward smaller agreements to enhance transatlantic trade cooperation in the long-term.

The CMA CGM Marco Polo, an Explorer class container ship crosses under the Verrazzano-Narrows Bridge, to enter New York Harbor as seen from Brooklyn, New York, May 20, 2021.
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In an increasingly geo-economic environment, it is important for the Western democracies to strengthen partnerships with like-minded countries—and that includes economics and trade. This relates first and foremost to the G7 countries. As they wrote in their communiqué after their latest summit in June at Elmau Castle in Germany: “As open democracies adhering to the rule of law, we are driven by shared values and bound by our commitment to the rules-based multilateral order and to universal human rights.”

The European Union (including the G7 countries Germany, Italy, and France) has a trade agreement with the United Kingdom, is close to fully ratifying CETA (the trade agreement with Canada) and has an Economic Partnership Agreement (JEPA) with Japan in place.

The only G7 country that is missing is the United States.

Talks on the ambitious Transatlantic Trade and Investment Partnership (TTIP) began in 2013. However, it was first put on ice due to public protests and outstanding negotiation issues, and finally abandoned after the election of Donald Trump as US president in 2016. Is it time to revive the agreement in some form or other?

The Situation in Germany

In March 2022 German Finance Minister Christian Lindner, who is leader of the pro-business Free Democrats (FDP), suggested a resumption of the negotiations for a free trade agreement with the US, a TTIP 2.0. However, it is not clear how much this idea is shared within the current German governing coalition of the FDP, the center-left Social Democrats (SPD), and the Greens

German Foreign Minister Annalena Baerbock, who is a member of the Greens, which supported the huge protests against TTIP, said in a speech to students in New York in August that Russia's attack on Ukraine had created a "key moment" in the transatlantic partnership. She urged to seize this opportunity to create a stronger, irreversible partnership for the 21st century and that Germany should be the country leading this effort. Baerbock mentioned three pillars for the new partnership: NATO, the rules-based international order, and the resilience of democracy—while making no mention of a TTIP-style transatlantic trade agreement.

Making Economic and Strategic Sense

There are many valid arguments in favor of a closer transatlantic trade and investment agreement. The EU and the US still form the largest trade and investment partnership in the world. An agreement that lowers trade and investment costs and also recognizes standards would still have huge economic benefits for both sides. In addition, a common agreement would also strengthen the position of both partners vis-à-vis China. Creating a larger transatlantic market would also help establish global standards. This could relate to new technologies, but also to issues such as sustainability and digital trade.

Also, from a geo-economic point of view, the better response to supply chain disruptions and strategic dependencies is not reshoring but diversification, i.e., the development of alternative suppliers. If tensions with Russia and China (over Taiwan) continue or even escalate in the future, it is important to look now for adequate economic and trade partners in advance to offset the ensuing economic losses. And the US would be the most obvious ally. According to a recent study published by the ifo institute, a Munich-based economic research institution, a transatlantic trade agreement could not fully offset, but definitely mitigate the negative effects of a possible decoupling from China.

Reality Check

Neither the EU nor the US have any interest in renewed TTIP negotiations at the moment. In the EU, the protests have not been forgotten. And despite the abandonment of the investor-state dispute settlements (ISDS) in favor of a multinational investment court system (which runs contrary to US interests), the fears among Europeans run too deep with regard to the perceived American laissez-faire attitude to corporate interests, food safety, and sustainability issues.

The US under President Joe Biden has abandoned trade negotiations altogether. There is no appetite for market access negotiations, which would also require the renewal of the Trade Promotion Authority (TPA) to pass through Congress. So, instead of re-joining the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which would make economic and strategic sense, the US is opting for a dialogue format, the Indo-Pacific Economic Framework (IPEF). In the transatlantic sphere, this translates into the Trade and Technology Council (TTC). There is, therefore, dialogue on issues of common concern—but no comprehensive agreement on market access.

What Can Be Done?

Transatlantic ties must be strengthened. And this also applies to trade. Both sides have already made progress in solving long-standing trade disputes such as the 17-year-long conflict over aircraft subsidies relating to Airbus/Boeing. They agreed in 2021 to suspend their punitive tariffs for five years.

But more needs to be done. In addition to the TTC, which focuses heavily on a common approach to trade defense measures and technology issues, a positive trade agenda is needed. Even though TTIP is out of the question, both sides should envision smaller agreements to enhance transatlantic trade cooperation in the long-term. The EU could, for example, renew its offer to eliminate all tariffs on industrial goods in transatlantic trade. This offer had been made during the Trump presidency to prevent a full-blown trade conflict over car tariffs. But it makes economic sense and could further strengthen transatlantic ties.

Furthermore, both sides should try to establish mutual recognition agreements (MRA) for a variety of sectors. One area could be pharmaceuticals. The US has an MRA in place with the EU relating to conformity assessments of human and veterinary medicines. This could be further enhanced. In addition, based on the TTC discussions, closer regulatory cooperation on the development of standards for new technologies is important.

These initiatives may seem small—in comparison to the ambitious TTIP negotiations. But they are important steps for further integration, which could serve as stepping stones in the future. In addition, transatlantic trade cooperation can also be enhanced in the multilateral arena of the World Trade Organization. This relates not only to WTO institutional reform, but also to new trade issues. One important aspect, which is important for the Biden administration and the EU, is the relationship between trade and climate change. Both sides already initiated a plurilateral agreement on environmental goods (EGA) in 2014, with the aim of eliminating tariffs on important environment-related products. The project was abandoned in 2016. Now is the time to renew these efforts.

The geo-economic environment makes transatlantic cooperation—including on trade—more important than ever. Even though large ambitious agreements like a TTIP 2.0 are out of the question, smaller positive trade initiatives could pave the way for stronger trade integration in the future.

Claudia Schmucker is head of the Geo-Economics Program at the German Council on Foreign Relations (DGAP).

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