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Transatlantic Trade and Investment Partnership (TTIP), Part 2 : TTIP, Regulatory Harmonization, and Non-tariff Barriers to Trade

The stated aims of the proposed Transatlantic Trade and Investment Partnership (TTIP) negotiations between the United States and the European Union are to increase jobs, profits, and worker incomes on both sides of the Atlantic. At this still early date, four key studies have quantitatively assessed the projected economic benefits of such an accord (Ecorys, CEPR , CEPII , and Bertelsmann/ifo). A recent report compares and assesses these studies’ outcomes, and summarizes key results as follows: (1) under the most optimistic liberalization scenarios, estimates of GDP and real wage increases range from 0.3 percent to 1.3 percent, with full achievement taking 10 to 20 years. The studies predict that unemployment in the EU will either remain unchanged (by assumption), or will be reduced by less than one-half of a percentage point over the 10 to20 year period; (2) because tariffs on transatlantic trade in goods are already at very low levels, roughly 80 percent of the economic effects of trade liberalization would depend on changes in non-tariff barriers (NTBs), i.e. the reduction or harmonization of regulations, administrative procedures, and standards. These elements of the TTIP negotiations are the subject of this second part in this four-part series.

Both the EU and U.S. governments regulate various industries. While there are many legitimate reasons for governments to regulate markets, regulation can be used as well to protect domestic producers from foreign competition. The stated principal purpose of TTIP is to reduce such “non-tariff barriers to trade.”

Deregulation or Regulatory Harmonization?: Auto Emissions

There are cases in which both the EU and U.S. have imposed legitimate regulations on domestic industries, but those regulations differ in ways that make producers of regulated goods change their production methods as they attempt to produce for different markets. Having to produce non-uniform products can drive up production costs. So, one stated purpose of the TTIP is to harmonize regulations among participating countries. Auto emissions standards provide a good example. U.S. standards and EU standards require differing technologies to be used to limit auto emissions. It may be that neither technology used is more environmentally friendly than is the other. Yet, simple differences in the standards require auto manufacturers to use different production procedures on cars destined for different countries. But if the two sets of legitimate emissions standards could be harmonized, it might be possible to lower production costs and car prices while maintaining air quality in both the EU and U.S. Regarding the harmonization of auto emissions standards, the Head of Daimler’s truck business, Wolfgang Bernhard recently stated,

We need to sweep away some of the non-tariff barriers. For example, if I look at the emissions standards in the US and in Europe, they are so similar. … Despite the fact that they are so similar, the industry has to spend a lot of money to ensure compliance with both in terms of different parts, different testing and different development. If we could agree that everyone recognises each other’s standards, all the money that is being wasted right now on two different standards could be put to far better use.

While harmonization of regulations among countries seems like a laudable goal, many citizen groups in both the U.S. and EU worry that TTIP might actually result in deregulation of industries in which regulation is needed. For example, various European environmentalist organizations are expressing significant concerns that TTIP might relax some very hard-won environmental and food-safety regulations currently in place:

Traditional trade agreements focus on the removal of tariffs, but as these are already so low between the EU and U.S., it will not be the main point of the deal. Instead, 80 percent of the projected ‘wins’ will come from removing ‘non-tariff barriers to trade’ (NTBs). These NTBs are trade-speak code for often hard-fought standards and regulations. Greens believe the drive to remove essential standards will negatively impact both regions in a variety of ways.

Protectionism or Valid Public Concerns?

Other key points of political disagreement about TTIP are about which government regulations and standards are in place to address valid consumer and public concerns, and which are in place simply to protect domestic producers from import competition. In this regard, harmonization of sanitary and phytosanitary (SPS) standards for food is a particular challenge to TTIP negotiators, and a principal matter of EU/U.S. political tension. Different countries’ differing SPS standards may reflect differences in collective preferences and assessments of risk. Food safety is a key concern of EU citizens, especially because they have experienced firsthand dramatic government failures in food safety regulation. (The UK government’s handling of the Mad Cow Disease episode in the 1980s provides a case in point.) U.S. consumers tend to express much more confidence in their government’s food safety regulations and enforcement. These basic differences in citizens’ trust in their government’s SPS regulations no doubt partly explain the significant EU/U.S. differences in public perceptions and the regulation of (1) genetically modified (GM) crops and food, (2) hormone-treated beef, and (3) the feed additive ractopamine in meat production. These topics are so politically sensitive in the EU that recently EU Commissioner for Trade Karel de Gucht stated that they are non-negotiable:

I have been very clear that we will not be changing our food safety laws as a result of this agreement. That goes for genetically modified food and hormone-treated beef as much as other products. These issues are just not on the table.

Yet, these same issues are of key concern to American negotiators, and if they are truly off the table, U.S. negotiators must not have gotten the message. Recently U.S. Secretary of Agriculture Tom Vilsack reiterated the U.S. position that SPS regulations should be based on scientific consensus:

We have a common goal, which is expanding markets, and we have a common language when it comes to dealing with these difficult issues and that common language is the language of science and a commitment to science and to letting science dictate and direct how we solve these problems.

It seems unlikely that EU policies delaying approval for various GM imports are a form of trade protectionism. The principle source of political pressure in the EU resisting GM crops is coming from consumer groups, not EU producer groups. The chief GM crops produced in the U.S. are corn and soybeans, and the EU produces only small amounts of these commodities.

On the other hand, the issue of geographic indicators (GI) is more easily construed as being about protectionism. The names of many food products indicate their place of original geographic origin. Parmesan cheese originated near Parma, Italy. Champagne was originally produced in the Champagne area of France, for example. EU producers of GI foods are concerned that when foreign producers label their products with geographic names not reflecting the goods’ true origins, consumers will come to identify the high-quality original product with lower-quality foreign substitutes. In the United States, “Idaho Potatoes” must come from Idaho, so why shouldn’t Roquefort cheese have to come from Roquefort, France? U.S. producers argue that consumers understand that a product’s geographic name describes its type, not its actual origin. For example,, few Americans would think twice when hearing that cheddar cheese is produced in Wisconsin, though it was originally produced in Cheddar, Somerset, England, no later than the 12th century. It seems clear that both sides of the GI issue have valid points. It may be that there is room for a certain amount of “horse trading” and compromise, with the United States accepting increased European producer rights to GI names, but Europeans speeding up their approval process for GM products. TTIP negotiators hope to exploit opportunities provided by these differences.

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