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Partnership, Relationship or Shipwreck?
The Unsolved Questions of the TTIP

Foreign policy is fun until you start asking who pays the bills. The transatlantic relationship has been the mainstay of Central European and Baltic security for the past 20 years. But it relied on the willingness of U.S. taxpayers to indulge European free riders. That is coming to an end. America is out of cash, and beset by new security worries in the Asia-Pacific region. It is unclear why the defense and security of the European Union (population 504 million and GDP $17 trillion) should, in effect, be subsidized by the United States (population 316 million and GDP $16 trillion).

Without a large and unlikely increase in European defense spending, that imbalance spells the end of NATO as the central transatlantic tie. But trade and investment ties could be a substitute. The sums involved are already huge. The largest and most important economic relationship in the world is between the United States and the EU, with daily trade flows of around $2.7 billion. EU investment in the United States is eight times the amount of European investment in India and China combined. The total stock of investment in both directions is over $3.7 trillion (for comparison, Poland’s GDP in 2012 was just under $530 billion).

The gains are potentially great. The proposed Transatlantic Trade and Investment Partnership (TTIP) would create the largest single market in the world, encompassing 830 million consumers and one-third of global trade. It would add a percentage point to world economic output, with most of the gains in the United States and the EU — about $700 to the annual income of the average EU household, and $840 to its American counterpart.

Striking a deal on TTIP would be a huge sign of political maturity and health in both Brussels and Washington. Getting the necessary measures through Congress would show that the Obama Administration still has the ability to get things done, and that America’s political divide is not as disabling as it sometimes seems. For Brussels, it would show that the EU is growing a political personality to match its economic clout. If you can strike a deal with America, then you can do so with anyone. It would be a welcome sign to Euro skeptic Britain that staying in the EU is desirable. It would show the member states that the Commission is still in the driving seat. And by nudging up economic growth, it might preserve political and social peace in the most vulnerable economies of the Euro-zone — thus, perhaps, saving the single currency.

Perhaps most importantly, the TTIP would reboot the transatlantic relationship on the new basis of mutual economic interest, rather than relying on the old one of military burden-sharing and solidarity. It would, in effect, reinvent the West — especially if the United States can also reach a deal on a Trans-Pacific Partnership (TPP).

All this will be particularly important for the countries of Central and Eastern Europe (CEE). It is not so much the potential increase in their exports (the big leap there came when they joined the EU). The real gain is in the wider security that comes from having America re-rooted in Europe. The TTIP dilutes the power of protectionist countries such as France, and entrenches the ascendancy of free-trading nations such as the Dutch, British, Swedes and Germans. If it goes through, it will be a further sign that the center of political gravity in Europe has shifted north (and to some extent, east).

But as with all free trade deals, the gains from TTIP are big, distant and diffuse. The costs are smaller, but come instantly and in a concentrated form. Lobbies and vested interests on each side have a lot to lose. The issues are easy to caricature. Will Americans really accept European cheese, with its nasty strong taste and abundant bacteria? Will Europeans accept hormone-treated beef, or chlorine-washed chicken? The answer will come in detailed (read: mind-numbing) negotiations about subsidies, product controls and tariffs.

On this issue, the CEE countries have a lot to gain. Both sides should be blushing about the costs they impose on their taxpayers and consumers in order to pamper farm lobbies. But the CEE countries in particular are not great beneficiaries of the existing EU regime. If TTIP speeds its erosion, that will mean less EU money wasted on West European farmers — and more available for other projects, of a less wasteful and market-distorting kind. One sticking point will be GMOs (food based on genetically-modified organisms). Here some CEE countries have been shamefully open to lobbying from the superstitious anti-science lobby.

The second big basket of contentious issues centers around electronic information. European countries want to protect their audio-visual industries from American competition, while disliking the tough copyright rules beloved by the U.S. entertainment industry. They also take a far tougher stance on data protection and privacy. The CEE countries are divided on this. As instinctive Atlanticists, they do not share the French and German left-wing view that the NSA is a global villain. But with recent experience of totalitarian rule they are highly suspicious of all forms of surveillance, and particularly the prospect of a digital panopticon. They are not great believers in copyright law — their loyalty to America was severely tested by the push for the ACTA treaty on intellectual property. On the other hand, unlike France, they do not have large native film or entertainment industries that depend on government subsidy.

Similarly, with regard to high-tech engineering (aircraft and defense equipment) the CEE countries, without much in the way of domestic industry to protect, have a lot to gain from TTIP. They might even benefit from new American investments in Europe. And they will certainly benefit from a wider choice and lower prices. They may also feel, when military equipment is concerned, that buying American is good for NATO solidarity.

The next component of TTIP is services. Here the CEE countries are unambiguous supporters of liberalization. They have been pushing for the EU to complete its own single market in services, but have been held up by professional lobbies and cartels (Italian lawyers and the like). A big push from across the Atlantic will be hugely welcome.

If the CEE countries want the TTIP — as they should — they should make it their top political, diplomatic and economic priority in the coming year. They have the most to gain if it succeeds, and the most to lose if it fails. They should take the negotiations as a chance to show themselves as team players — good Europeans and good Atlanticists. Clearly they cannot please everyone all the time, but on issues where common sense suggests the American side is likely to make concessions (such as on digital copyright rules and data) they should push the EU to be tough. On issues where Europe has to give ground (services liberalization and GM food) they should be encouraging Brussels to back down.

The TTIP will never sound as attractive as NATO. It will never have an Article 5, or a heroic, romantic narrative that stretches from the Normandy Beaches to the Berlin Wall. But it could pay the bills for the future of the wider transatlantic alliance. The future, without it, looks bleak for Europe — and particularly so for the continent’s smaller, poorer and weaker countries.

By Edward Lucas

Edward Lucas is a Senior Adjunct Fellow at CEPA and International Editor of The Economist. He has been covering the Central and Eastern European region since the mid-1980s.

This article first appeared in the CED (Central Europe Digest) August 6, 2013 issue
Permission granted to reprint.
CED is a publication of the Center for European Policy Analysis (CEPA), a Washington, DC-based research institute devoted to the study of Central and Eastern Europe. Material published in the Digest is original, exclusive to CEPA and not reproduced from outside sources.