Tag Archives: TTIP

Europe–Too Soon for An “All Clear”

The economic crisis that once seemed poise to rip the euro zone apart more recently appears to have receded. Greece just successfully floated a bond issue and yields fell across Europe’s troubled periphery. The threat would seem to have been beaten back by bold central bank assertions. In the summer of 2012, European Central Bank President Mario Draghi announced a plan to do “whatever it takes” to save the euro zone.

Appearances can deceive. The Draghi plan (also known as OMT) restored a degree of confidence and stopped a sell-off of sovereign bonds. But the sovereign debt crisis was only one of three interlinked crises plaguing the euro zone. A crisis in the banking sector meant that European business had little access to credit. A crisis of growth meant that peripheral euro zone countries have been suffering from shocking and persistent levels of unemployment. None of these crises have gone away. In recent weeks each crisis has burbled and revealed a lack of policy coordination, either within the euro zone or internationally.

The sovereign debt crisis appears the most benign, as evidenced by this week’s nonchalance among bond investors in Portugal, Italy, Greece, and Spain. But in none of these countries does there appear to be an accepted plan to reduce debt to manageable levels, leaving them vulnerable to future crises of confidence. France and Italy have recently pushed for lenience on austerity rules (waivers for deficit targets), to the dismay of the Germans and the Finns.

Banking progress might seem promising, given that the members of the euro zone recently concluded arduous negotiations to craft a plan for banking union. They reached an agreement, but it appears unwieldy. For example, it grants euro zone banking authorities the power to close troubled banks, but only after a dauntingly extensive series of mandated consultations. At least one prominent commentator (Wolfgang Münchau) argues it is worse than nothing. In terms of international coordination, the US Fed clearly caught Europe off guard with its recent stress tests by setting tougher standards than the Europeans were inclined to impose.

Growth has been tepid, at best, and uneven throughout the zone. The latest IMF forecast, released this week, featured upward revisions, but only called 1.2 percent euro area growth in 2014 and 1.5 percent in 2015 (after -0.7 in 2012 and -0.5 in 2013). Those numbers are averages, with much of the strength coming from northern countries like Germany. Recently, the IMF Managing Director, Christine Lagarde, warned of the dangers of European deflation. The ECB, however, declined to lower rates (it did begin to muse about the possibility of quantitative easing). None of these moves signal confidence about an impending recovery. The Trans-Atlantic Trade and Investment Partnership (TTIP), upon which Europeans were placing their hopes for a boost to growth, is moving very slowly. There are serious conflicts over issues such as data protection, investor-state dispute settlement, and multiple facets of agriculture. TTIP has the potential to boost European growth, but that is likely well into the future. The countries could also pursue growth through structural reform, but this is impeded in countries such as Greece, Italy, and France by ideology or political weakness.

The euro zone has enjoyed a prolonged reprieve because of heightened global confidence, but core problems in sovereign debt, banking, and growth remain. Recent weeks have highlighted sharp differences of view over ways to address these concerns.  Without longer-term solutions, the problems simply await a fall in market confidence in order to reemerge.

Guest Commentary: TTIP – Views from Europe

By Fredrik Erixon, director and cofounder of the European Centre for International Political Economy (ECIPE), a world-economy think tank based in Brussels, and was the Convenor of the Transatlantic Task Force on Trade, a joint project of ECIPE and the German Marshall Fund of the US that spearheaded the TTIP negotiations. A fuller version of his analysis can be found here (PDF).

Failures in the World Trade Organisation’s Doha Round have prompted countries to turn to preferential trade agreements. But are they worth their salt? While the most outstanding feature of past FTAs is that they have not had impressive effects on growth in trade and Gross Domestic Product (GDP), the negotiations for a Transatlantic Trade and Investment Partnership (TTIP) may change this verdict. Clearly, TTIP will be won or lost for its economic merits. And the pro-growth effects of TTIP are really what persuaded reluctant officials and politicians in Europe to join countries like Germany and Sweden in their efforts to push for a transatlantic FTA. Given Europe’s poor growth rates, trade agreements that could deliver higher economic growth have been given a new hearing.

Few would deny that TTIP has the capacity to deliver a sizeable contribution to GDP in Europe. The gains from this FTA would be bigger than from other FTAs for the reason that it involves two large economies. Simply, size matters. A “conservative” estimate by the Centre for Economic Policy Research in London suggests the TTIP gain for the EU to be in the tune of 0.3-0.5 percent of GDP (the GDP gains are slightly smaller for the US).

However, political scepticism of TTIP is less concerned with the bilateral economic gains (or losses) and more directed to its consequences on the World Trade Organisation as the central forum of trade negotiations. But perhaps surprisingly to some, the debate in Europe over TTIP has taken a different view. Generally, it has not thrived on the notion that TTIP should be an attempt to build a Fortress Atlantic – or that it is a strategy to gang up on China or other emerging powers competing with the US and Europe.

So while the strange acronym of TTIP is for some a code word for the death knell of the WTO, many trade observers in Europe would argue it is the substance that should be used to give global trade policy a needed shot in the arm.

TTIP, like the TPP, was not born out of deep and genuine beliefs in the principles of free markets or the classical school of free trade. Like any other trade agreement in the past years, these initiatives build on conditional views of free trade and free competition mixed up with soft mercantilism and a growing urgency to support economic growth. Yet it is the best available strategy to rejuvenate global efforts to liberalise trade.

In the past 15 years, the multilateral trading system has been a leaderless system with no clear direction that has unified the key members. The system itself benefited for several decades from the leadership by the United States, which considered this system to be critical for its overall strategic objective of spreading market-based capitalism. There were willing followers to the US leadership, but none other than the US had the requisite economic, political, and institutional capacity to underwrite the system. Yet since the collapse of the Cold War, American leadership has withered away, and its general position on trade liberalisation has somewhat changed. Absent political leadership and direction, the Doha Round got stuck because the political instinct of many countries was to favour status quo rather than new liberalisation as long as there is no external pressure that prompts them to revisit that position.

Like many other things in economic life, trade liberalisation tends to be driven by two motives: profits and fear. Countries agree to open up for greater foreign competition because they believe it will boost their economy or because they fear that other countries will go ahead without them if they stubbornly resist liberalisation. Despite all the success of trade-oriented models of growth, many countries have grown to think that they will not stand to benefit much from new trade liberalisation – and that they have no reason to fear failure.

TTIP may partly change this. It is a big initiative. And if the two biggest economies of the world go for a bilateral agreement, it means that there is a risk for other countries that stand outside that bilateral agreement and, which is important, other efforts to liberalise trade. That risk is mostly about not having a voice in the design of the trade reforms that are likely to serve as benchmarks in future international agreements. It is far less about loosing current trade access – but it is about the fear of not having as good access to trade that will be liberalised in the future. Consequently, if TTIP is the ‘real thing,’ if it achieves the promise of ushering the world into 21st Century trade policy, the response from the larger emerging economies cannot be no response at all. The political and economic opportunity costs of status quo would have been changed.

Global Trade enters Crunch Time

Those who enjoy sports will be familiar with the rhythm of a season. In the period before the first games are played, every squad is filled with ambition and whispers about exciting new players. Then there are the initial games when those hopes are put to the test. Ultimately, one reaches the point in a season when the team must either win a big game or forget thoughts of post-season glory for at least another year.

The global trade agenda is entering an analogous critical stage.  There was a joyous pre-season with calls for new, improved, 21st century trade agreements. There were predictions of fabulous trophies for the successful – hundreds of billions of dollars in economic growth, countless new jobs!

The analogy to sports gets a little strained in one particular dimension, though. Following the progress of trade undertakings like the Trans-Pacific Partnership (TPP), the Trans-Atlantic Trade and Investment Partnership (TTIP) with Europe, or the WTO talks differs from a sports season in that one doesn’t actually get to watch the games. Instead, it’s the equivalent of being kept on the outside of the stadia where the games are played and just hearing the occasional rumor – “That player took a big hit!”; “Someone just made an amazing play!”; “I hear cheering! That has to be a good sign.”

The negotiations themselves are conducted in secrecy – a tradition that has become a sore point with complaints about the lack of transparency. Devotees are left to parse the emanating rumors or to wait for an established deadline, when the players who have been battling out of sight will all emerge beaming and victorious, with their helmets raised above their heads – or they will stagger out looking battered and dejected.

We are just now reaching one such key deadline. Next week, trade luminaries are scheduled to gather in Bali for a World Trade Organization Ministerial meeting. Cheering for a WTO agreement has recently been as fulfilling as backing the Cubs for the World Series. Yet lately there has been legitimate cause for hope. Even though the grand ambitions of the Doha talks, launched in 2001, were stymied years back, there was a recent move afoot to try for a less ambitious package, one that would demonstrate that the WTO was still relevant. Not only that, but there was a new manager. The Brazilian Roberto Azevêdo took over the WTO this fall from the Frenchman Pascal Lamy.

At The Chicago Council’s recent conference on the Frontiers of Economic Integration, former US Trade Representative Susan Schwab highlighted the importance of the Bali meeting, to be held Dec. 3-6. She said that the potential for a modest package was as important as anything that had gone on in global negotiations for the last two decades. She showered Azevêdo with praise, stating that if anyone could pull off the difficult feat of bringing 150 countries together, he had the skills to do it.

But the latest news coming out of the negotiating arena sounds grim. The negotiators involved failed to agree on a text for ministers to take up at the ministerial next week. Azevêdo was quoted as saying that members had “stopped making the tough political calls.”

In the sporting world, a setback like this would invariably be followed by predictions of redoubled effort and renewed hope next season. But the opportunities on the global trading scene are fewer and farther between. Instead of such bromides, Azevêdo warned of dire consequences from a Bali failure, both for the multilateral trading system and the global economy.

It is an inauspicious start for the critical phase of the global trade season. The TPP talks were intended to conclude by the end of this year. Senate Finance Committee Chairman Max Baucus (D-MT) has been saying he would like to get agreement on US trade negotiating authority by the end of this year as well, though past deadlines have already been missed. And the TTIP talks are meant to wrap up before the European Commission turns over in late 2014. Trade fans will be listening, increasingly nervous, for hopeful news. They will take little consolation from suggestions to just “wait for next year.”

Guest Commentary: Explaining Differing US and European Data Privacy Perceptions

By Stephen Ezell, Senior Analyst, Information Technology and Innovation Foundation

In recent months, heightened by revelations regarding the United States’ global surveillance and data gathering operations, data privacy has become one of the most contentious policy issues dividing the United States and its European trade negotiation partners. So what explains the differing approaches to data privacy between the United States and Europe?

It starts with the fact that, in Europe, privacy is viewed as a fundamental human right, and, as such, it takes primacy over other personal and societal values. In contrast, in the United States, many people view privacy more as a consumer right and as one value among many, and thus believe that privacy must be balanced against other competing interests.

In particular, in the United States, it’s viewed as reasonable to give consumers more ability to manage their privacy settings online in exchange for the provision of innovative digital services. In fact, many of the most popular Websites on the Internet would not exist today without online advertising, which supports the creation and maintenance of new online content, applications, and services: everything from Google’s free email service Gmail to Facebook’s social networking services. Online advertising provides the revenue that fuels innovative business models and drives much of the Internet economy.

But Europeans place a higher priority on privacy. For instance, proposed updates to the European Union’s 2002 Privacy and Electronic Communications Directive (PECD) would introduce restrictive privacy regulations limiting the ability of advertisers to collect and use information about consumers for targeted advertising. The regulations would limit the ability to target online advertisements to users based on certain protected categories of data, such as an individual’s race or ethnic origin, political opinions, religion or beliefs, trade-union membership, genetic information, health, sex life, and criminal history. These restrictions could potentially prevent or limit marketers from effectively creating targeted ad campaigns for services. For example, whereas it would be perfectly acceptable in the United States to present a Web advertisement for ChristianMingle.com or JDate based on one’s Web search history or social network posts, this would be forbidden by European data privacy rules.

Moreover, even in analyzing the impact of existing PECD privacy rules, Avi Goldfarb and Catherine Tucker found that they resulted in an average reduction in the effectiveness of online ads of approximately 65 percent. The authors write “the empirical findings of this paper suggest that even moderate privacy regulation does reduce the effectiveness of online advertising, that these costs are not borne equally by all Websites, and that the costs should be weighed against the benefits to consumers.” If European advertisers reduced their spending on online advertising in line with the reduction in effectiveness resulting from stricter privacy regulations, “revenue for online display advertising could fall by more than half from $8 billion to $2.8 billion.” Likewise, in a broader analysis of the economic impacts from Europe’s Data Privacy Directive, ECIPE finds that if fully implemented it would reduce EU GDP by 0.35 percent, in even the most conservative estimate.

The second difference is that the United States tends to manage data privacy issues on an industry-by-industry basis, thus we have HIPAA (Health Insurance Portability and Accountability Act) regulating health data privacy rights, Gramm–Leach–Bliley rules regulating privacy of financial data, etc. The United States is not likely to pass an overarching, across-the-board data privacy law — along the lines favored by the Europeans — anytime soon. Thus, the Safe Harbor program — a framework that allows US companies to self-certify that they adhere to a set of privacy principles enabling them to comply with requirements of the EU Data Protection Directive — will remain vital to successful Trans-Atlantic trade and free flows of data.

However, in the wake of the PRISM revelations, some European data protection authorities have called for a suspension of data transfers under the Safe Harbor agreement, since US companies are in “apparent violation.” Moreover, Germany announced on November 3 that it intends to push for tough data protection controls to be included in the Trans-Atlantic Trade and Investment Partnership Agreement (TTIP). But the US perspective is that the Safe Harbor program has worked satisfactorily, has robust enforcement mechanisms, and should be continued.

At the end of the day, data flows are critical to a global, networked economy and thus data issues need to be a component of future high-standard trade agreements. At the same time, those agreements need to preserve a framework that permits different kinds of data privacy rules to be in place among countries. From the American perspective, it’s a global economy, and we can’t have one country or region saying here are the data privacy rules that the entire world has to play by. In summary, trade policy has just barely begun to scratch the surface of issues raised by digital trade, and it’s high-time for the global trade agenda to enter the digital age.

Taking a Byte Out of Trade

Europeans have reacted to accusations of US spying with revulsion. In today’s Financial Times, Chicago Council President Ivo Daalder explores the degree to which European leaders’ surprise might be disingenuous, but also whether governments should refrain from crossing certain lines as they inevitably gather intelligence.

The furor over allegations that the United States has tapped Spanish phones or listened in on German Chancellor Merkel’s cell conversations touches on trade in at least two ways. First, alleged US government actions threaten a rift between the United States and the European Union at a time when the two are supposed to be racing ahead with a trade agreement, the Transatlantic Trade and Investment Partnership. Second, the dispute over government actions can color discussions about privacy concerns when setting rules for the private sector.

As part of the upcoming conference on “Frontiers of Economic Integration,” we will have a breakout panel devoted to issues of data privacy and electronic commerce. On the question of whether the spat over spying will impede the negotiations, one of the panelists at Wednesday’s session, Hosuk Lee-Makiyama, this summer argued that it should not. Hosuk, director of the European Center for International Political Economy, wrote:

European bluster over NSA spying is unlikely to decide the fate of trans-Atlantic trade talks, which faced huge obstacles long before Edward Snowden started leaking security briefs. For those of us who work within the narrow circles around Brussels, the only real surprise is that someone would actually bother to eavesdrop on us when every journalist and embassy intern seems to have access to the EU’s own ‘classified’ documents.

Hosuk also cautioned last month against letting the reaction to revelations serve as an excuse to block data flows.

Both Hosuk and fellow panelist Stephen Ezell have addressed broader questions about digital trade in the US and global economy in testimony before the US International Trade Commission (here and here). Stephen, a senior analyst with the Information Technology & Innovation Foundation (ITIF), has also co-authored a report on “How to Craft an Innovation Maximizing TTIP Agreement.”

There are a range of interesting policy and economic questions surrounding electronic commerce that did not necessarily arise back in the day, when countries just shipped manufactured goods in exchange for commodities. With such knowledgeable panelists – as they say these days – it should be interesting to listen in.