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New rules of engagement: Understanding TPP and TTIP New rules of engagement: Understanding TPP and TTIP
by Prof. Michael R. Czinkota
2016-06-22 10:38:47
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New rules of engagement: Understanding TPP and TTIP
Michael R. Czinkota and Valbona Zeneli

Since its founding in 1948, the World Trade Organization (WTO) and its precursor have remained quite tightly targeted on the trade and investment zone. With its particular focus on tariff reduction and trade negotiations, it serves as the pre-eminent glorious knight battling on behalf of consumers.

However, all that began to change in the past two decades. Success attracted allies. The number of WTO members rose from 27 in 1948 to 162 today. Decisions of the WTO remain consensus based, which means that all votes have to be unanimous. Pervasive terror threats, encouraged politicians to focus on the high-intensity and visibility politics of national security and war, as opposed to the low-intensity politics of trade and investment. Progress was also slowed due to shifts in the center of trade gravity and challenges in current markets by rapidly growing new competitors. The global recession intensified the tendency to ignore international economic issues, as attention shifted to domestic job creation and the protection of domestic credit markets. In consequence liberalization has stepped outside of the WTO. The last two decades brought a do-it-yourself approach, defined by mega-regional agreements and preferential pluri-lateral trade negotiations, tailored for only a limited number of players.

ttp01The Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) are key to this development. TPP is a free trade agreement covering 12 countries from North and South America to the Pacific Rim, while TTIP represents a free trade agreement between the United States and the European Union. The TPP negotiations concluded in October 2015 after four years of intensive talks. Legislative ratification will be the next step. TTIP has been under negotiation since June 2013; hopes are for completion by the end of 2016, making use of the transition time for U.S. administrations and Congress.

The combined trans-Pacific and trans-Atlantic space covered by these agreements encompasses 60 percent of the world economy, and 22 percent of its population, according to the International Monetary Fund.

But the economies differ in terms of per capita incomes and living standards. The TPP economies represent 27.3 percent of world GDP and 10.7 percent of the world’s population. The TTIP economies represent 33 percent of world GDP, with 11.2 percent of the population. However, there are also notable differences in the scope and goals of the agreements themselves. TPP is focused at opening markets and eliminating tariff barriers on trade and investment. TTIP mainly concentrates on tackling costly non-tariff barriers and strengthening Foreign Direct Investment (FDI) rules.

Trans-Atlantic average tariffs at 4 percent are much lower than the trans-Pacific ones. TTIP is much more about investments than free trade, with both parties extensively embedded in each other’s economies. Such relationship has produced more income, created more jobs and generated more wealth than trade alone.

TTIP is more ambitious in comparison to TPP. In addition to to the financial and economic benefits, TTIP will have a larger geostrategic impact, since it reinforces the strong ties that exist between Europe and the United States. TTIP is a natural Western partnership, with mature, well-developed and consolidated markets, and a strong mutual defense relationship based on the North Atlantic Treaty Organization (NATO). Both components are missing in Asia. However, this might change with a tumultuous re-formation of the EU and perceived instability of the region.

Economic realities emphasize TTIP as well. The trans-Atlantic economies are the innovation powerhouses of the global economy, and a crucial element of future growth and balance. The United States and the EU are by far the two largest trading blocs in history. Given the size and scope of the trans-Atlantic economy, standards negotiated by the United States and the EU could become a leading benchmark for future global rules, and slow down the acceptance of competing standards.

TTIP and TPP are strategically interlinked with each other. Both agreements are important in terms of how the various partners, including the pivot of the United
States, jointly relate to newly rising powers, and whether the West still has the energy and dedication to set new standards for the international economic order. Both TTIP and TPP take on an increasing strategic importance in light of the continuously growing role of China, and other emerging markets in the global economy. A simplification of trade and investment relations via the two agreements would also push the WTO to expand its useful life.

TPP is also important for the EU. Higher growth rates in the trans-pacific region will help Europe through increased exports. TPP also reinforces the geopolitical reality of rebalancing Asia.

Achieving progress in the simplification of trade and investment relations is important to global prosperity. The approaches taken by TPP and TTIP may well indicate the future of trade negotiations – tightly focused talks between selected participants aiming for improvements in fields of comparative advantage within a clearly defined time frame.

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Michael Czinkota: works at Georgetown University and is a former Deputy Assistant Secretary of Commerce in the United States Department of Commerce. His key test is International Marketing, 10th ed. Cengage  

Valbona Zeneli: is a professor at the George C. Marshall European Center for Security Studies. The views presented are those of the author(s) and do not necessarily represent views and opinions of the Department of Defense or the George C. Marshall European Center for Security Studies. 


       
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