House of Lords - The Transatlantic Trade and Investment Partnership

The Transatlantic Trade and Investment Partnership - European Union Committee Contents

Chapter 2: THE PURPOSE OF THE TTIP

Jobs and Growth

23. Both the European Commission and the UK Government have identified "jobs and growth" as the overriding purpose of concluding a TTIP agreement with the US.[26] Ambassador Sapiro, Deputy US Trade Representative, put it to us that, in view of the economic challenges the US and EU are still facing, there was a common view that they could not afford to leave any jobs "on the table".[27]

GROWTH

24. In their written evidence, the UK Government pointed to the CEPR studies commissioned by the Department for Business, Innovation and Skills (BIS) and the European Commission to suggest that an ambitious, comprehensive TTIP deal could over the long-term be worth up to £10bn (or 0.35 per cent of GDP) annually to the UK, up to £100bn (or 0.5 per cent of GDP) annually to the EU, and up to £80bn (or 0.4 per cent of GDP) annually to the US.[28] The GDP gains would be relative to projected GDP levels without TTIP in place. The European Commission explained that "this would be a permanent increase in the amount of wealth that the European and American economies can produce every year." The gains would be expected to build up gradually, with gains increasing every year from the moment the agreement enters into force until it is fully implemented, and reaching their full level by 2027.[29] As indicated above, the vast majority of those gains would be expected to result from reductions in non-tariff barriers to trade, rather than from reductions in tariffs. This is particularly true for the UK, where up to 90 per cent of gains would be expected to come from such measures.[30]

JOBS

25. The CEPR study produced for the European Commission does not include figures on the TTIP's overall impact on job creation. It does, however, examine the potential impact on wages and on the reallocation of jobs among different sectors of the economy as different sectors contract and expand as a result of the TTIP. Wages for both skilled and less skilled workers are projected to rise by around 0.5 per cent. Meanwhile, 0.7 per cent of the labour force is expected to move between sectors as a result of the TTIP over 10 years. The European Commission has pointed out by way of comparison that the average annual change in EU manufacturing employment between 2001 and 2007 was 2.1 per cent, and concluded that any labour movement between sectors prompted by the TTIP ought therefore to be "easily absorbed by these normal processes."[31]

SECTORS

26. In terms of sector-specific impacts, analysis by BIS suggests that in the UK the sectors where output would be expected to increase as the result of a TTIP agreement are vehicles (4.1 per cent), financial services (1.1 per cent), insurance services (0.7 per cent), processed foods (0.5 per cent) and chemicals and pharmaceuticals (0.5 per cent). Sectors expected to see "modest" declines would include transport equipment (-0.4 per cent) and miscellaneous manufacturing sectors (e.g. textiles, clothing, footwear, materials and furniture), with only the metals and metal products sector projected to contract by more than 1 per cent (-1.5 per cent).[32] Across the EU, by contrast, the CEPR study produced for the European Commission suggests that the metal products sector would be expected to benefit from a TTIP agreement, as would the processed foods sector, chemicals, and transport equipment. As in the UK, the sector with the most to gain would be the motor vehicles sector.

CONSUMERS

27. The European Commission has suggested that consumers should expect to benefit from cheaper products as a result of the TTIP, and pointed to CEPR analysis indicating that in the best-case scenario, the average European household of four would see its disposable income increase by €545 per year by 2027 as a result of the combined effect of wage increases and price reductions.[33]

WITNESSES' VIEWS

28. The AFL-CIO expressed sympathy with the views of Dean Baker, of the Center for Economic and Policy Research, who had noted that the projected GDP increases in the study produced for the European Commission would not materialise in full until 2027, and that they reflected a best-case scenario. In a less ambitious, and "presumably more realistic" scenario, the GDP gain for the US by 2027 would be "roughly equal to a normal month's growth" and thus in Mr Baker's view, "too small to notice".[34]

29. Professor Baldwin advised us to treat the figures with caution for a different reason, pointing out that figures were projected against a "status quo" world, and that experience—for example with predictions on the effect of the North American Free Trade Agreement (NAFTA)—had shown that the status quo world "was nothing like what actually happened, because a thousand things happened". It was consequently "very difficult" to sort out what NAFTA did, and it might in future be similarly difficult to disentangle the effects of a TTIP agreement from other factors. He nonetheless judged that the numbers "will be realistic, but over a medium run."[35]

30. With regard to income gains for consumers, Professor Baldwin told us that it was "basically impossible to say how much this will add to people's income" and suggested that we "take with a large grain of salt any particular numbers on the overall numbers". We could, however, have confidence in the sectoral predictions: "if you look at the CEPR studies saying that the biggest sectors that will be [affected] are motor vehicles, chemicals and processed food, you can take that to the bank."

31. Professor Baldwin noted that "rich people consume a lower fraction of their income, so anything that lowers prices of consumption tends to favour lower income people." He also pointed out that, on both sides of the Atlantic, the most protected parts of the economy were food, so that if there were to be progress on liberalising the food trade, it would be more favourable for people with low incomes, who spend more of their income on food. He warned, however, that this would be difficult to achieve, as the big protectionist barriers were usually associated with extremely strong special interests.[36] The US Department of Agriculture also sounded a note of caution, suggesting that, while expanded choice and increased competition did tend to lower prices, in the US the effect would more likely be felt in industrial goods, whereas in agriculture, the EU's competitive advantage tended to be in high-end products rather than in basic food basket commodities.[37] On this side of the Atlantic, the National Farmers' Union was more optimistic, suggesting that it would be "axiomatic" that if tariffs were reduced, one would expect consumers to benefit, and that if the TTIP talks were to succeed in liberalising trade and making food more affordable, consumers should expect to benefit both in price and expanded choice.[38]

32. In regard to jobs and wages, the TUC told us that while they would "welcome the creation of decent quality jobs and higher wages", they saw a need for "an independent analysis of the labour market impact of the TTIP so negotiations can be guided to maximise the deal's potential to create higher skilled jobs, and industries likely to be negatively impacted by the TTIP are supported to retrain their workforce."[39] Other unions such as the AFL-CIO (American Federation of Labor and Congress of Industrial Organisations) and the UK's GMB expressed concern that jobs in those EU member states that have higher wages and more employment rights might be lost, rather than created, if reductions in tariff and non-tariff barriers as part of the TTIP led to a reallocation of investment. We return to this issue in paragraph 58 below.

Conclusions and Recommendations

33. By analogy with the Single Market programme to which a number of our witnesses have likened the initiative, we judge that a Transatlantic Trade and Investment Partnership has the potential to deliver substantial economic benefits to both parties.

34. We recognise that the potential economic benefits—and costs—of a trade and investment treaty between the United States and the European Union are difficult to predict with any certainty while negotiations are still underway. Were a Transatlantic Trade and Investment Partnership (TTIP) to be concluded, its effects would no doubt be difficult to disentangle from many other factors that influence growth and employment. We nonetheless judge that the net effect of the agreement would be to boost employment and prosperity on both sides of the Atlantic, and that neither the UK nor the EU should pass up the opportunity to reap those gains.

35. We recommend that, in making the case for TTIP, the UK Government and the European Commission should deploy the headline figures from economic studies commissioned prior to the start of negotiations with extreme caution, lest they dent the credibility of an initiative that has merit in its own right.

36. In our view, GDP figures beginning with zero and household income gains that would not materialise in full until 2027 will not win hearts and minds, even if they are substantive effects. The traditional political hurdle for trade agreements is that potential benefits are diffuse while potential costs are concentrated, and TTIP is unlikely to be an exception. Proponents will therefore need to show that there are tangible potential gains for identifiable groups. We recommend that, as negotiations progress and the outline of a possible agreement emerges, the European Commission and the UK Government should commission more detailed analyses of the possible practical effect of tariff reductions for consumers of particular goods and services in the EU, and on the effects that TTIP may have on investment, and by extension jobs, in particular sectors and EU member states, much like the material that has already been prepared for US audiences.[40]

Other purposes

37. Although the European Commission, the UK Government, and the US Administration have all placed bilateral economic objectives at the centre of what the Transatlantic Trade and Investment Partnership is about, our witnesses drew attention to a range of other objectives that could be pursued through the TTIP, many of which would have implications for third countries.

GEOPOLITICAL

38. A first point made to us was that TTIP would inevitably serve a political, as well as an economic, purpose. Dr Daniel Hamilton, Director of the Center for Transatlantic Relations at Johns Hopkins University's School for Advanced International Studies, suggested TTIP could be viewed as a new link and commitment in the economic sphere to supplement NATO in the military sphere and thus help to rebalance the transatlantic relationship between the US and Europe. He warned us that there was a danger that the EU-US relationship would increasingly be seen in the US as a legacy relationship that was less relevant to the current world. The health of the transatlantic relationship, he argued, had for decades been defined primarily through the military prism, and had failed to tap the huge potential of the economic connection. TTIP could therefore be seen as a "second glue" to shore up the transatlantic relationship, at a time when the old link—NATO—was "a little wobbly". Calling TTIP an "economic NATO" would in his view be wrong, in that it could give the impression that there was an enemy, but it served as convenient shorthand for conveying the message.[41]

TEMPLATE FOR FUTURE TRADE NEGOTIATIONS

39. A second function for TTIP identified by almost all our witnesses was its potential to serve as a template for future bilateral, plurilateral and multilateral trade agreements by virtue of the fact that any provisions agreed between the US and EU—which together account for almost half of world GDP[42]—would inevitably serve as an orientation point for others. The TUC, for example, anticipated that once the world's two biggest economies signed up to a deal, the rules it contained were likely to become the "gold standard". In their view this meant that the standards set by a TTIP agreement would be much more important than for their impact on the EU and US alone: standards could be "locked in" for future agreements, for better or worse.[43]

40. Other witnesses arrived at the same conclusion from a different starting point. They noted that, as tariffs fall, non-tariff barriers to trade tend to be erected in their place.[44] It would follow that in negotiating a TTIP agreement with a focus on non-tariff barriers, the EU and US would be at the cutting edge of where trade negotiations are expected to head in future. Lord Mandelson described the focus on behind-the-border barriers to trade in TTIP as "almost virgin territory in international trade negotiation" while Commissioner De Gucht identified norms and standards as "the next big battle in trade … what it is really about in the decade to come".[45] The Commissioner went on to suggest that if the EU and US could forge common standards they would play a very important role worldwide.

41. The UK Government took the view that such progress would have two systemic benefits. First, unblocking divisions between the EU and US could "provide a boost to sectoral negotiations across the multilateral system"—for example those conducted under the auspices of UNECE[46] or the World Intellectual Property Organisation, where divisions between the EU and US frequently block progress. Second, horizontal measures adopted as part of TTIP could serve as the basis on which to improve relevant WTO agreements—for example on Technical Barriers to Trade and Sanitary and Phytosanitary Measures.[47]

42. The UK Government nonetheless recognised a "danger" that the regulatory lead shown by the EU and US either on horizontal issues, or in specific sectors, might conflict with multilateral efforts and establish competing regulatory approaches. They suggested this risk would "need to be managed" and identified three ways of doing so: adopting rules of origin that are as open as possible; adopting regulatory approaches that are based on existing internationally agreed best practice; and having an accession process to TTIP that encourages others to join provided that they can comply with the regulatory components.[48]

CATALYST OR SUBSTITUTE FOR THE DOHA ROUND

43. A third potential function for TTIP that witnesses drew to our attention was its relationship to the Doha Round of multilateral trade negotiations among members of the World Trade Organisation (WTO). Our witnesses were divided on whether TTIP could help to catalyse the Doha Round or might instead—perhaps in combination with the Trans-Pacific Partnership[49] (TPP) that is also under negotiation—serve as a substitute for it.

44. Lord Mandelson anticipated that the EU would place great emphasis—possibly more than the United States—on making sure that anything achieved in the TTIP would, over time and by whatever means possible, be multilateralised through the World Trade Organisation (WTO). He emphasised that the TTIP should not be "a closed shop for Europe and America to serve and suit each other but an open architecture that others can join and emulate".[50]

45. Dr Hamilton suggested that EU and US leaders had not yet been clear enough on this point. He drew a contrast with the Trans-Pacific Partnership (TPP), where leaders had said that although there were 12 countries negotiating, it would also be open to all members of APEC[51] and even beyond. The US and EU had not said anything equivalent in respect of the TTIP, which in Dr Hamilton's view risked creating the impression that it would be a closed agreement, "about rich countries pulling up the drawbridge." He proposed that leaders should affirm that the TTIP was part of open-architecture trade and would be WTO-compatible, or face losing some of the public debate.

46. Other witnesses saw the TTIP as a distraction from the Doha round of trade negotiations among WTO members. The AFL-CIO expressed concern that "together, the TTIP and the TPP are substitutes for a Doha round agreement at the WTO. What developed countries like the US, EU and Japan cannot achieve multilaterally at the WTO, they may be seeking to accomplish in smaller groupings where they have more leverage."[52]

47. Lord Mandelson contested the idea that the TTIP was a distraction from the Doha Round, arguing that much of what the TTIP would focus on was a very long way from where most of the other WTO members trade and where they would wish to negotiate, both with the EU and with the United States.[53] Professor Baldwin judged that the Doha Round was in any event "in a sort of holding pattern."[54]

48. A number of our witnesses suggested that TTIP could help to catalyse the Doha Round by changing China's attitude to the WTO negotiations. According to Professor Baldwin, the US had found it very frustrating that China would not treat itself like a developed country in the WTO and would not step up to the plate and make concessions in the Doha Round. In his view, the US was using the TTIP to "make China demandeur", in the belief that once China had something to negotiate for in the WTO it would expand the Doha agenda and take a leadership role in the WTO.[55] Lord Mandelson also judged that "the United States, but not so much the European Union, is pursuing what to my mind is a fairly clear policy or approach of encirclement of China."[56]

49. Lord Green of Hurstpierpoint, then UK Minister for Trade and Investment, was more circumspect, but expressed hope that as progress was made on TPP, TTIP and in the WTO (through the Bali agreement struck in December 2013), China would become more and more keen on becoming involved. He suggested it would be in the UK's "global interest" to keep this momentum up.[57]

50. The Chinese government advised us to regard the possibility of exporting elements from a TTIP agreement into a multilateral setting as no more than an aspiration. "This is an intention from the US and the EU. This is not automatically the common understanding from other members [of the WTO], because we know that the multilateral system serves all members." They reminded us that there were varying levels of economic development among WTO members, and warned that, if the intention on the part of the EU and US was to convince third parties that their result would be suitable for others, "any others will see whether this idea is a good or bad one for third parties."[58]

51. Commissioner De Gucht told us that he had no intention of imposing norms and standards on China. He did, however, "want to create a situation where China cannot impose standards on us."[59] Dr Hamilton suggested the TTIP was about helping to define the terms on which China and other developing countries could be integrated into the world economy. Until now, each side had been talking to third countries separately in an attempt to shore up their own standards: EU and US messages to third countries had been divided at best, and competitive at worst. The approach the US and EU had taken to tackling the problem of lead in toys imported from China—creating a trilateral consumer safety process—demonstrated that when the US and EU joined forces they could exert much more influence. This was in his view the logic of TTIP.[60]

Unintended Consequences

52. Quite apart from the official and unofficial reasons for concluding a trade and investment treaty with the United States, a TTIP agreement might also have unintended consequences. Our witnesses highlighted in particular its possible effects on third countries, and especially developing countries; its potential to send jobs overseas if it were to lead to a redisposition of investment; and the potential for regulatory co-ordination between the US and EU to undermine labour, environmental and consumer protection standards.

EFFECT ON THIRD COUNTRIES

53. A number of witnesses highlighted the potential for changes in tariffs and tariff preferences to impact negatively on third countries. The TUC directed us to a study by the Bertelsmann Stiftung projecting that EU trade with neighbouring states in North Africa and Eastern Europe would decline by an average of 5 per cent if there were to be a comprehensive agreement between the EU and US, because this would devalue existing preference agreements.[61] Professor Rollo pointed out that for a lot of developing countries, particularly low-income developing countries, the tariffs that might be removed in transatlantic trade by a TTIP agreement are not trivial for the products in which they are competitive and which are currently their major exports, such as textiles, clothing and footwear.[62] The UK Government told us they had commissioned analysis on the potential effect of a TTIP agreement on developing countries, which showed that some countries and products might face increased competition, for example Bangladesh, Pakistan and Cambodia on garments and footwear, Ghana on fish, and Nigeria on light oils.[63]

54. Most witnesses concurred, however, that these effects should be "limited", for two reasons.[64] First, the exports from developing countries to the US and EU are very different from the trade the TTIP partners have with each other.[65] Lord Mandelson told us that "many of the emerging economies, most of the developing countries, and all of the least developed countries are not competing with us in those markets at that top end of the value chain."[66] Professor Rollo also noted that in the areas where there were still significant tariffs between the EU and US, such as on textiles, the EU and US are not competitive in each other's markets, so that it was arguable that even a 10 per cent or 15 per cent tariff preference would not make that much difference to the underlying competitive position of third countries.[67] Second, it was suggested that there would be ways to mitigate these kinds of negative effects. Professor Baldwin noted that if the US and EU gave each other tariff preferences on textiles, apparel and agriculture, that would hurt the third countries that were left out, but Europe could potentially counter that by unilaterally improving GSP preferences and thus attempting to offset any negative effect.[68]

55. Some witnesses warned that TTIP might also have an impact on third countries through a different channel, namely if regulatory cooperation between the US and EU resulted in standards becoming more stringent.[69] Professor Baldwin put it to us that "the problem for developing countries is that we get this US transatlantic [TTIP], transpacific [TPP] set of high-standard rules—but are they the right rules for developing countries? They will not have a choice. They obey those rules or they do not export, just like Switzerland."[70] The UK Government recognised this risk, but again thought it could be mitigated: "there are development assistance funds that could be allocated to help developing country exporters meet new standards."[71]

56. Others emphasised that regulatory cooperation between the US and EU might also bring benefits to third countries. Professor Rollo explained that "even if you harmonised at a higher level of protection, it might still be outweighed by having the two markets together and the economies of scale in conforming to that new harmonised regulation. It is costly to conform. If you have to conform to two different regulations, that is twice the cost, so there is a trade-off."[72] Professor Baldwin drew our attention to the parallels with the single market project: "everybody said "Fortress Europe! What are we going to do?"In the end there was no Fortress Europe. The single market was good for Japanese and American exporters."[73] Professor Rollo acknowledged this, but noted that it had been a conscious choice. Mutual recognition agreements, he explained, can be strictly preferential, i.e. they can be bilateral and exclude third countries. In building the Single Market, the EU by and large went down the road of being non-discriminatory in its application of mutual recognition, which according to Professor Rollo, "was a big and important point."[74] The UK Government appear to acknowledge this, noting that "if there is mutual recognition of standards through TTIP, it would be in the interest of developing countries for this recognition to be open to third countries that currently meet either EU or US standards."[75]

57. The majority of our witnesses therefore concurred that the scope for negative effects on third countries from changes in tariffs and tariff preferences between the US and EU was limited, and that although they might also face new regulatory hurdles as a result of TTIP, this might be offset by the benefit of not having to conform to two different sets of standards when exporting into EU and US markets.

OFF-SHORING JOBS AND DEREGULATION

58. A number of witnesses drew our attention to their concerns that a trade and investment treaty between the EU and US might result in jobs being sent off-shore, and that regulatory co-ordination between the two parties might undermine labour, environmental or consumer protection standards in the European Union.

59. Corporate Europe Observatory told us that, in their view, "a trade agreement is about doing away with and reducing barriers to trade to make it easier for companies to move their goods, services and investments. It increases their power and leverage in a society." Trade agreements such as TTIP would therefore serve to "increase competition between workers, which in the long term puts pressure on issues such as wages and labour rights."[76]

60. The GMB saw a "very real risk of our hard-won European employment and social rights being levelled down to often much lower American standards".[77] The TUC echoed this concern, pointing out that the US has not ratified six of the core International Labour Organisation (ILO) conventions, and that "Right to Work" laws, "which clamp down on unions' capacity to bargain and organise", had been passed in 24 US states.[78] The GMB went on to argue that "contrary to the rosy predictions made by TTIP advocates, that the deal will boost employment and create thousands of new jobs, in reality it could lead to increased unemployment and mass social dumping as EU companies relocate to the US to take advantage of their weaker labour laws, or US companies choose to operate only in the poorer EU member states, where wages and conditions are lower and trade unions weaker."[79]

61. This concern was shared not only by other UK unions (TUC and Unite) but also by the AFL-CIO in the United States. They told us that from their point of view, the TTIP is unique in the sense that the United States is the low-wage participant in the agreement, because US wages are lower than in the major manufacturing economies in the EU. They also warned that "in the comparison to NAFTA, the US would be Europe's Mexico—particularly the southern states that are lower wage, that are 'right-to-work', that would be less tolerant of workers exercising their labour rights."[80]

62. Other witnesses firmly rebutted the suggestion that TTIP might prompt companies to relocate across the Atlantic as a result of wage competition from the US. Lord Livingston of Parkhead, UK Minister for Trade and Investment, emphasised that "the average wage in the US is higher than the average wage in Europe by some distance."[81] Ford Motor Company told us that "rarely if ever" had Ford moved a plant to another country because wage rates were lower. Instead, numerous factors would lead to that decision, including tariffs, energy costs, the ability to source parts and suppliers, and access to raw materials, so that the cost contribution of labour was only one small factor in the equation. They went on to argue that, between the US and Europe, there was in any event no huge advantage on either side of the transatlantic marketplace, either in terms of regulation or from the cost of labour.[82]

63. It was also suggested to us that there might be scope to use the negotiations to "level up" in the area of labour standards instead. Unite proposed that the EU should call on the US to ratify fully the ILO conventions as part of negotiations towards a TTIP.[83] The UK Government appeared to be open to this suggestion, stating in their written evidence that the TTIP negotiations "represent an opportunity to work with the US on the implementation of International Labour Organisation standards."[84] Professor Baldwin took the view that this was the more likely direction of travel, noting that "the political game in the US is to get the US more or less to agree to the core ILO things. It is not Europe going down." In his view, the Democrats were using trade agreements as a way of forcing the US into ILO core standards.[85]

64. The TUC and Unite also saw scope to use the TTIP to extend elements of the EU social model to the US—or at least to European companies operating in the US—in order to promote European Works Councils and extend other worker voice mechanisms to US employees.[86]

65. Other unions were more pessimistic. The GMB recognised that some had argued that the TTIP might provide an opportunity to raise labour standards, but judged that, "given current economic pressures, there is far more risk of these being levelled down." The AFL-CIO argued that rather than raising the bar, trade agreements signed by the US tended to set a floor for labour standards, and warned that mechanisms to enforce even those basic standards were "generally weak at best."[87]

66. Professor Baldwin judged that a prospective "race to the bottom" on standards might be more of a concern in respect of food safety, health and safety, and the precautionary principle than in respect of labour or environmental standards.[88] The AFL-CIO raised a range of concerns about the effect TTIP might have on consumer protection, suggesting that any benefits an agreement might bring to consumers in terms of lower prices would be "marginal" and more than outweighed by the risk of dragging down consumer protection standards, for example food safety standards. In their view, large food conglomerates did not want to label growth hormones or GM ingredients, and would therefore try to sideline the European Union's precautionary principle[89] (its approach to risk management on the environment and human, animal and plant health matters) and "go after" EU labelling rules. The term "sound science" was in their view no more than "code words" to get rid of safeguards.[90] Corporate Europe Observatory echoed these concerns, and told us they feared that "if it is not the way to wipe out important consumer legislation in future, it is definitely a good tool for industry to prevent progressive consumer legislation in future."[91]

67. Which? took a more optimistic view, explaining that they were "broadly supportive" of TTIP negotiations and saw the potential for an agreement to lead to better alignment of consumer protection on both sides of the Atlantic as well as bringing increased consumer choice.[92] They were in favour of articulating the consumer outcomes that should be protected whilst allowing mutual recognition of the ways in which those outcomes were achieved. They nonetheless warned that there were "areas in which there should be caution", including food safety and product safety, stressing that they would want the EU to be able to maintain use of the precautionary principle and that care should be taken to ensure that mutual recognition is done in a way that ensures consumer protection.

68. The UK Government rejected the idea that EU regulatory standards might be watered-down, emphasising that they were clear that a "race to the bottom" in respect of product safety, labour standards or environmental protection "must not be the case in the TTIP negotiations" and that they would be on their guard in this respect.[93] The MEPs we heard from were equally adamant. Robert Sturdy MEP told us that labour and environmental standards were "one of those red lines that is absolutely clear."[94] Maria Eleni Koppa MEP predicted that the EU would not give up its labour and environmental standards, "that is for sure".[95]

69. General Electric told us that "nobody is under any illusion that somehow this is a back door to getting regulatory regimes on both sides lowered in their stringency". In their view, the business community's perspective was that there was more than enough work to be done in alignment and coherence where the regulatory standards basically stay the same—it being "the whole point" that the EU and US had equivalent outcomes in those areas—and that they could benefit from that "without playing any games".[96]

70. Professor Evenett judged that the "people who are very concerned about the race to the bottom and the falling standards have very effectively organised themselves and their position". Combined with regulatory "inertia", this would act as a brake on widespread deregulation, he predicted.[97]

The price of failure

71. We also asked our witnesses about the implications of failing to conclude a TTIP agreement. The TUC emphasised the missed opportunity, telling us that "we would lose the positive results that might flow from a TTIP, with the added complication that world trade would continue to increase without the EU playing such a key role, or benefiting as much."[98] Lord Green of Hurstpierpoint, then UK Minister for Trade and Investment, also saw the price of failure as the foregone opportunities, themselves "an opportunity cost of considerable magnitude". But more generally and in his view more importantly, failure would have an impact on overall dialogue at the global level on trade relationships and investment relationships that would "clearly be deleterious". He hoped that TTIP would become "something of a benchmark for regional agreements that can then feed into the overall multilateral process." He concluded that "failure in the US will not help that cause."[99]

72. Commissioner De Gucht told us that "not making a deal will have a price and could have a substantial price", not only for Europe but also for the US. Not reaching a deal would weaken their position in what he saw as the "next big battle" about norms and standards, and so there would be "a price if we do not get there."[100] Lord Mandelson warned that if the negotiation were to break down, there would be "acrimony". He predicted that "a large blame game would ensue and it would poison relations between two very important trading partners."[101]

Conclusions and Recommendations

73. TTIP is not just another trade deal: by virtue of the fact that the EU and US together account for nearly half of world GDP, any agreement they conclude would necessarily have ramifications for other countries and for the multilateral trading system. The initiative therefore has both a strategic dimension, and a geopolitical one.

74. TTIP is in our view a political as well as an economic project, not least because it could serve to revitalise and rebalance the transatlantic relationship between Europe and the United States. One of its most important legacies may be the establishment of a structured dialogue on regulatory matters between the EU and US sustained into the future, through provisions for a living agreement.

75. The initiative also provides the EU and US with an opportunity to set a high-standard precedent for future trade and investment agreements, and would to that extent serve a strategic purpose. We recognise that this avowed intention could prompt unease among other trading partners, but in our view it should not: agreement between the US and EU is pivotal to the progress of other multilateral initiatives, including, but not limited to, the Doha Round. Were TTIP negotiations to run aground, prospects for those other initiatives would look worse, not better. We therefore agree with Lord Green of Hurstpierpoint that a TTIP agreement should help to sustain momentum at the WTO following the Bali agreement, and help to promote China's full involvement.

76. The EU and US should nonetheless address concerns that TTIP could be a "closed shop" in which the world's richest economies pull up the drawbridge. We welcome the UK Government's recognition that there should be an accession process to allow third countries to participate in TTIP; that regulatory approaches adopted as part of the TTIP should be based on existing internationally agreed best practice; and that any mutual recognition of standards achieved through TTIP should be open to third countries. Provided that an eventual agreement has the right features—including those we have listed—we anticipate that the positive external effects of a TTIP agreement could outweigh any negative effects on third countries.

77. The design of a TTIP agreement will matter, and we therefore recommend that the UK Government should press its EU partners, the European Commission, and the US administration to choose design features that will allow third countries to participate in the benefits accruing through TTIP, in the same way that third countries have been able to benefit from the development of the European Single Market.

78. We also recommend that, at a later stage in the negotiations, the UK Government and the European Commission should bring forward proposals to mitigate the possible adverse effects of changes in tariff preferences on developing countries, and to help their exporters to meet new standards. The UK Government should press for the implementation of such measures as an integral part of its approach to the initiative overall.

79. Concerns about the effect that TTIP might have on jobs, on employment rights, and on consumer protection are in our view not equally well-founded, and need to be disentangled. This is because some of those standards—for example some product safety standards—are directly under negotiation, while others—such as specific employment rights—are not. We recommend that, in making the case for TTIP, the UK Government and the European Commission articulate more clearly which areas of regulation will be under discussion, and which will not.

80. In principle, a trade and investment treaty between the EU and US could, over time, lead to a reallocation of investment—and with it, jobs—as tariffs and non-tariff barriers are reduced or removed. Once an agreement begins to take shape, the UK Government and European Commission should therefore ensure that the likely scale and direction of such effects are carefully evaluated—as recommended in Para 36 above.

81. Employment rights—on either side of the Atlantic—are not directly under negotiation as part of the TTIP. We therefore see no prospect that labour regulation in EU member states would be watered down as part of the initiative. We nonetheless urge the UK Government and European Commission to seize the opportunity presented by the sustainable development chapter of the negotiations to press the United States to ratify the International Labour Organisation's core conventions.

82. By contrast, product safety and food safety regulation are likely to be under discussion, and it is therefore vital that the UK Government and the European Parliament should be vigilant in making sure that there is no detriment to consumers and the environment from co-ordination between the EU and US.

26 See, for example, Commissioner De Gucht's speeches on the subject, and BIS, para 1. Back

27 Appendix 4: Evidence taken during visit to Washington, D.C., para 136. Back

28 BIS, para 19. Back

29 European Commission, TTIP: The Economic Analysis Explained, p.2 and p.6. Back

30 BIS, para 23. Back

31 European Commission, TTIP: The Economic Analysis Explained, sections 2.2.1-2.2.2. Back

32 BIS, paras 20 and 26. Back

33 European Commission, TTIP: The Economic Analysis Explained, Summary; and Table 18 in CEPR for European Commission, Reducing Transatlantic Barriers to Trade and Investment: An Economic Assessment, March 2013, available at http://trade.ec.europa.eu/doclib/docs/2013/march/tradoc_150737.pdf. Back

34 AFL-CIO and 'The US-EU trade deal: don't buy the hype', The Guardian, 15 July 2013, available at http://www.theguardian.com/commentisfree/2013/jul/15/us-trade-deal-with-europe-hype. Back

35 Q 204. Back

36 Q 205. Back

37 Appendix 4: Evidence taken during visit to Washington, D.C., para 82. Back