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Transatlantic Trade and Investment Partnership (TTIP) – An Upcoming Trade Agreement –Impact of TTIP on World’s Trade Scenario

Globally, bilateral and regional trade agreements, such as FTAs (Free Trade Areas), have become the primary drivers toward global economic integration since the early 2000s.  Transatlantic Trade and Investment Partnership (TTIP) is similar to that notion.  It is a proposed trade agreement between the EU (European Union) and the USA (United States of America).  The agreement is aimed at establishing the biggest free trade zone in the world spanning over the North Atlantic region.  What differentiates TTIP from almost 260 currently existing FTAs in the world is its phenomenal reach and sheer size.  The proposed agreement will encompass almost half of the global GDP and one third of the global trade.

Here is a summary of benefits and concerns related to TTIP:

Transatlantic Trade

Impacts on the EU and the US

The primary aim of TTIP is to cut tariff barriers between the US and the EU, which are levied to control cross border trade, to zero.  In addition, it also formulated to reduce the other non-tariff barriers in the range of 25% to 50% between the two regions.  It will benefit several business sectors, such as, related to metal products, processed food and chemicals, and most importantly the automobile industry.  It will also facilitate easier and flexible capital movement between these regions, which will provide much needed investment for small to medium companies to expand and grow, according to market research.

The idea behind TTIP also extends to increase the regulatory cooperation in areas of environment, food safety laws and banking regulations between the two regions.  The areas linked to trade such as access to energy markets, competition policy, and sustainable development will also be covered in TTIP.  These areas are not covered in the rules formulated by WTO (World Trade Organizations) for bilateral and multilateral agreements.

Impact on Rest of the World – Especially Developing Economies

According to Modern Growth Theories, positive spillovers of international trade can allow nations to stimulate economic growth without relying on constrained fiscal resources.  Also, the EU and the US being the world’s leading importers of goods from developing countries can be advantageous for such countries.  Expanded economic activities in these regions will allow trade in middle and low-income countries to grow.  In addition, regulatory cooperation or approximation between these two regions will also benefit other economies.  This will be achieved by reducing the high compliance costs for exporters in other countries that arises in order to comply with two separate sets of trade regulations.

However, the new trade flows that will be established between the two regions can also lead to some trade diversions for the developing economies.  The magnitude of trade diversions will depend mainly on established alias, and level of preference to trade with other countries.   The degree to which these two regions will trade products with each other that they also import from third countries will also be a deciding factor.

The threat of trade diversions seems very plausible, especially for the middle-income countries.  Eliminating the tariffs duties within TTIP region, while maintaining duties on imports from developing countries, can put developing countries at disadvantage.

Conclusion

While some suggests that proposed benefits from TTIP will overshadow the concerns, the actual effects could have the potential to address the growing gaps between domestic, regional, and interregional levels.  It is claimed by some experts that given the sheer size and comprehensiveness of the agreement, it will set new and higher standards for global FTAs in the future.  Also, its implications on both the parties involved and for the rest of the world will define the future of the global trading system.

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