Brexit Makes TTIP More Important
In the shadow of the British referendum, the European Union and the United States finished their fourteenth round negotiations on July 15 for the proposed Transatlantic Trade and Investment Partnership (TTIP).
While Britain’s exit from the EU would certainly justify a rethink of the trade deal, it will not derail TTIP, at least not on its own. Instead of putting a nail in the coffin of TTIP, as some have suggested, Brexit could reinvigorate the controversial deal because TTIP has the potential to dissipate some of the economic and political shockwaves generated by the ill-conceived referendum.
TTIP, a proposed mega free trade agreement (FTA) between the U.S. and the EU, would integrate almost half of the world’s GDP and a third of its trade flows.
State of Play
After 36 months of intensive trade talks which started in July 2013, the negotiations for TTIP have reached an advanced stage, if not an endgame. Textual proposals have been tabled by both sides on most of the 27 negotiating areas, and many of them (such as competition, customs, trade facilitation, and dispute settlement) are in the process of consolidation.
Yet, some sticking points remain. The EU has not submitted its position paper on anti-corruption provisions, and U.S. negotiating guidelines on energy and raw materials and economic subsidies have not been put forward. In addition, there is still a contentious tug of war between the two sides over the EU’s bread-and-butter demands for greater access to the U.S. public procurement market and Washington’s dissatisfactions about Brussels’ offers on services. Due to these intricacies, negotiators have thus far failed to come up with a single text of the TTIP agreement.
Show of Solidarity for EU
To many, Brexit reinforces the already strong centrifugal forces within the EU, throwing the unity (or even the existence) of the 28-nation bloc into doubt. However, the departure of the UK—a half-hearted member which does not share much of the founding visions of the EU—could also make it easier for the remainder of the EU to stay united, think strategically, and act decisively.
Brexit may shore up the determination of those more committed EU states to negotiate and conclude TTIP agreement in the interest of European solidarity and cohesion. This euro-optimism is not at all unfounded; it is indicative to note that public support for EU membership has resurged across the continent, defying the dire expectation that a contagious Brexit would presage the disintegration of the EU.
In addition, a high-standard TTIP, if crafted skilfully, is a forceful response to the toxic anti-free trade, isolationist and crude xenophobic sentiments plagued both sides of the Atlantic. It is an opportunity that the EU and the U.S. cannot afford to waste if they are serious about fighting myths surrounding globalization and about convincing the disillusioned and disenfranchised electorates that economic openness is the way forward.
But to the extent that the triumph of the Leave campaign is essentially a motion of no confidence against unfettered globalization and sprawling corporatism that have left many in the cold, the EU should step up its efforts, through beefing up the European Globalisation Adjustment Fund, for example, in protecting the interests of those who are going to be made redundant by the creative destruction process of transatlantic trade liberalization.
Nesting UK-EU relations into TTIP
The immediate turbulence agitated by the vote aside, the long-term impact of the referendum ultimately hinges on the nature of the post-Brexit relationship between the UK and EU27. A variety of proposals have been floated, but they are far from ideal.
The EU lite Norwegian European Economic Area model dictates that the UK adopts EU regulations in full, in exchange for access into the single market. The cherry-picking Swiss bilateral treaty model is unattractive to the EU and the unilateral disarming Turkish Customs Union model exposes the British domestic markets to the EU’s 53 FTA partners worldwide without reciprocity.
TTIP could come to Britain’s rescue. Of course, a single deal cannot by itself magically unlock Britain from the complicated Brexit paradox, but it is Britain’s best hope to shorten the fickle period between the UK leaving the EU and a new trade relationship being inaugurated for three reasons.
First, a TTIP-based post-Brexit arrangement, discounting some inevitable painful trade-off, is superior to other plausible alternatives. TTIP is a modern, comprehensive agreement which the UK may find tempting to join anyway. It would give Britain fuller access to the single market without the burden of accepting free movement of people or making budgetary contributions to Brussels.
This option is comparatively more viable also because FTA, as opposed to a customs union, does not oblige the UK to synchronize external tariff regimes with the EU27, nor does it interfere with London’s trade policy autonomy of putting up trade fences against third-party exports. In addition, unlike other countries seeking to join the TTIP, the UK, before it formally extricates itself from the EU, still has considerable influence to engineer the deal in a way that better suits the UK in a post-Brexit context.
Second, anchoring future EU-UK relations under the framework of TTIP will save time. The EU has made it clear that talks about re-defining EU-UK relations will commence only after settling the divorce first. In fact, according to Charles Grant, there could be as many as six layers of interlocking set of negotiations for the UK to undertake. These tortuous and time-consuming negotiations, if indeed take place in a sequential manner, will subject the business community to a protracted period of uncertainty.
However, if the UK manages to nest its subsequent relationship with the EU into the TTIP which is currently in the making, the UK and the EU can re-establish links while unwinding existing ones. This de facto (not de jure) parallel approach is acquiesced by some softer EU member states, including Germany and Baltic states, who benefit from the UK’s security commitment in the region. After that, the UK can put more effort into sorting out its relationship with the World Trade Organization and its 163 members, the EU’s FTA partners, the Commonwealth nations, and emerging economies such as China.
Last but not least, Britain’s participation in TTIP is important by itself. On the one hand, it prevents the EU’s internal split from undermining the bargaining power of the EU, and from dampening U.S. appetite for TTIP. After all, the UK is the second largest economy in the EU and accounts for one-fifth of total U.S. exports to the bloc. On the other hand, it demonstrates that TTIP is truly the kind of inclusive free trade area that it claims to be.
Arguably, the UK could aspire to link up instead with signatories of the Trans-Pacific Partnership or the North American Free Trade Agreement, but TTIP is the only platform that ensures the UK to maintain coherent free trade relations with its top two trading partners, the continental Europe and the US.
The Clock is Ticking
In spite of the inherent complexities of negotiating an in-depth trade deal of the magnitude of TTIP, both sides reiterated their intention to conclude the negotiations this year. Part of this shared sense of urgency has its root in the fear that swinging political climate could turn against the deal very soon. Germany and France will hold general elections next year amidst growing anti-Americanism, and whoever takes over the White House in January 2017 will surely be less sympathetic to trade liberalization.
The EU28 and the U.S. should move quickly, and tie up TTIP as soon as possible. And with Brexit, the possibility that the bilateral TTIP will eventually morph to an US-EU-UK trilateral treaty cannot be ruled out completely.
Ji Xianbai is PhD candidate at S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore. He holds the prestigious Nanyang President’s Graduate Scholarship, and is currently Visiting Fellow at the European Union Centre in Singapore.