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01/10/2016

TTIP vs. WTO: Who sets global standards?

Sustainable Dev.

TTIP vs. WTO: Who sets global standards?

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The EU and the US need to be aware that going it alone with TTIP comes at a high price: the initiative incentivises the formation of economic blocs, rather than the much vaunted shaping of globalisation, write Clara Weinhardt and Fabian Bohnenberger.

Clara Weinhardt is post-doctoral fellow at the Bremen International Graduate School of Social Sciences and Research Associate at the Global Public Policy Institute (GPPi) in Berlin.

Fabian Bohnenberger is Research Assistant at the Hertie School of Governance and was in Nairobi to follow the WTO Ministerial conference by invitation of the International Centre for Trade and Sustainable Development (ICTSD).

This is an updated English version of a commentary that originally appeared in German on EurActiv.de.

The 10th Ministerial Conference of the World Trade Organisation (WTO), held in Nairobi in December 2015, yielded only limited results. While the United States and the European Union called for the conclusion of the so-called Doha negotiating round, developing and emerging countries expressed a desire to keep the agenda alive. Expectations now are that global trade policy will be increasingly negotiated in different fora.

But to what degree can free trade agreements between a limited number of trade partners – such as the mega-regional trade agreements that have been proposed in recent years – truly set global rules and serve as a substitute to the WTO?

Proponents of the Transatlantic Trade and Investment Partnership (TTIP) often claim that the agreement would offer the opportunity to shape trade rules not only between the EU and the US, but also beyond the transatlantic area. German Minister for Economic Affairs Sigmar Gabriel described TTIP as “a lever that allows us to steer globalisation”. That is, TTIP could set new global rules for trade. The Initiative New Social Market Economy, a German NGO, put it more bluntly: “Without TTIP, others will set the rules.”   

But TTIP’s ability to create global standards is limited. The agreement may even be detrimental to the promotion of higher social or environmental standards. At most, the EU and the US will be able to create a limited number of technical product norms that are of significance for others. The implication, however, is less the steering of globalisation than the securing of global market shares. Instead of aiming for inclusive trade negotiations, TTIP symbolises a withdrawal from multilateralism and a clear rejection of the WTO. But the EU and the US cannot substitute the WTO with TTIP.

TTIP will not create global environmental and social standards

Contrary to the claims of some proponents, TTIP is not an adequate forum for introducing higher environmental standards or workers’ rights at the global level. It is difficult to imagine that India, for example, would accept improved environmental and social standards in its trade negotiations with the EU only because the US agreed to them through TTIP. Spreading transatlantic rules would only work indirectly, based on the attractiveness of European and US markets – but this would also be the case without TTIP.

How, then, should the EU and the US enforce these standards and rights in other states? If the EU and the US are serious about higher social and environmental standards, a better strategy is to enforce compliance by tightening the legal obligations of their internationally operating companies. This course of action, however, remains highly unlikely because it might lead to losses in global market shares and company revenues.

TTIP creates another obstacle on the road to higher global environmental and social standards: the agreement increases competition between the EU and the US on one side and the rest of the world on the other. TTIP sends a signal to other nations that they should set up similar initiatives with their trading partners. Because less developed countries perceive lower social and environmental standards as an important competitive advantage, an alignment with higher transatlantic standards is highly unlikely.

Joint product standards are unlikely

Most of TTIP’s gains would stem from cooperation on product standards and technical norms. Until now, regulations like testing requirements and product safety standards differ significantly on both sides of the Atlantic. If the EU and the US were to agree on a common approach, TTIP could increase their market power. But this scenario does not reflect the claim of proponents that TTIP is about steering globalisation; rather, its primary reason is to boost the competitiveness of transatlantic partners. 

While regulatory cooperation sounds easy in theory, practice shows that the process is highly complicated. TTIP negotiators are aiming for the harmonisation of standards only in a few narrow areas. The creation of common transatlantic standards seems most likely in future fields of regulation such as e-commerce. Even the Federation of German Industries rarely mentions the harmonisation of standards in its detailed position paper on regulatory cooperation within TTIP. It is much more likely that mutual recognition of both sides’ existing approaches will constitute regulatory cooperation in most areas of TTIP. This method also promises economic gains, but it is not geared towards setting global standards.

Shaping globalisation differently

The EU and the US need to be aware that going it alone with TTIP comes at a high price: the initiative incentivises the formation of economic blocs, rather than the much vaunted shaping of globalisation. The creation of blocs implies that countries will be treated less equally in the future.

The ability of other countries to set global rules will be just as limited as that of the EU and the US, but the former will pursue their own initiatives. China is already negotiating the Regional Comprehensive Economic Partnership (RCEP) in the Asia Pacific. Thus, liberalisation will not be extended to all WTO members automatically; rather, it will be limited to certain trade partners.

This development would have a primarily negative effect on developing countries: they will be unable to keep up in the scramble towards liberalisation, and they will be excluded. At the same time, an ever more complex system of trade rules and regulatory standards will be detrimental to everyone.

If the EU and the US really want to shape globalisation according to their values, they cannot ignore the WTO and other multilateral fora. Only the WTO offers the opportunity to negotiate rules for trade that are truly global, with participation and buy-in of all member states. As demonstrated at the Ministerial Conference in Nairobi, the willingness to compromise is low, not least because of agreements like TTIP.

But the difficult and sometimes painstakingly slow negotiating processes of the WTO remain the only way to avoid the formation of costly economic blocs. The EU and the US alone can no longer set the rules of globalisation.