Among the outcomes of last week’s G8 in Lough Erne, the formal launching of negotiations on an EU-US Transatlantic Trade and Investment Partnership (or ‘T-TIP’) may prove to be one of the most historic.
With the promise of new jobs and lower prices, it has the potential to make a real and positive impact for citizens. As my colleague Martin Harris notes, the US invests three times more in the EU than the whole of Asia, and there’s $2.7billion of trade between these two blocks comprising around half of world output daily.
T-TIP is A Big Deal, as this infographic underlines. We estimate it could be worth $280 billion a year, which from a UK perspective could be equivalent to a £100 billion boost to the economy over the next decade. And the OECD’s Trade-in-Value-Added (TiVA) analysis suggests that if anything we are underestimating the degree of interdependence between the world’s two biggest economic blocks.
But with tariffs already low on each other’s imports, where will the gains from a T-TIP trade deal come from?
OECD work on global value chains, and an upcoming study of ‘behind-the-border’ restrictions on trade, throw some interesting light on this question. They underline that the traditional boundary between domestic and international policies is getting increasingly blurred.
Domestic policies on regulation, competition, investment and procurement can have major knock-on effects on trade partners. As such, new ‘deep’ trade deals such as T-TIP look to go beyond traditional trade measures such as tariffs or quotas, to also focus on the things that place unnecessary burdens on people who are trying to trade and invest across national borders.
In short, traditionally ‘domestic’ policy reforms may be the focus of much of the TTIP negotiation.
Once the world’s two biggest economies sign up to a deal, the rules it contains are likely to become the ‘gold standard’ – the benchmark against which other deals are measured.
As such, the ongoing discussions on T-TIP, as well as on other big deals such as the Trans-Pacific Partnership and the EU Japan FTA create the possibility to take a big step forward in strengthening the rules-based international economic system that UK Minister Hugo Swire talked about at last month’s OECD Ministerial.
A key consideration will of course be to ensure that the rules agreed on can be ‘multilateralised’ – that’s to say turned into WTO disciplines to which everyone can adhere in future. A global set of rules or agreements remain the first best option where possible.
So a challenge for the OECD is how it plans to integrate its expertise across all these areas – regulation, competition, investment, procurement, trade, and so on – to help us understand where the most important elements of any T-TIP deal lie. And go further to show us new ways that upgraded international rules can combine with a smart domestic policy agenda to deliver job-rich prosperity.