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The impacts of TTIP on trade relations between EU and ASEAN

clanok-balaz2

Prof. Ing. Peter Baláž, PhD.
EUBA
Bratislava, Slovakia

The agreement on transatlantic trade and investment partnership TTIP between EU and US which basic framework is being discussed by the US administration and EU authorities for the second year are gaining on intensity, especially after the approval of a similar agreement with Canada (CETA).

 

The main reason are not only expected positive effects of its ratification but also the fact that these transatlantic partners have not been able to cut loose from the sluggish financial crisis since 2008. This fact has a negative impact on the overall political atmosphere on both sides of the Atlantic. Therefore an agenda that would create new opportunities to restore economic growth is urgently required.

According to CEPR, the TTIP ratification should boost EU income by 120 billion € per year and GDP by about 0.5%. An expected increase in exports to USA (8%) should benefit mainly the automotive, as well as pharmaceutical and mechanical engineering industries. Services and agro sector report an optimistic outlook as well. In addition to improved conditions in bilateral foreign trade, negotiators emphasize positive impacts resulting from removal of various regulatory measures (technical, sanitary, phytosanitary and other) that have been so far imposed mainly on engineering, chemical and pharmaceutical industries. Further benefit lies in liberalization of other restrictive measures in power engineering, intellectual property rights or economic competition.

Expert opinions on TTIP ratification are different. Many draw attention to its various problem areas. In addition to agriculture where we mainly talk about adhering to European sanitary and hygienic standards and protection of consumers against, for example, genetically modified food; the risk lies mainly in different mechanisms of dispute settlement (ISDS) between investors and states (arbitration). Past experience shows that especially transnational corporations (TNK) have the upper hand and promote their investment plans on the EU territory much more easily.

Economic development in 2015 and predictions for 2016 are so far not in favor of ratification. An enormous strengthening of the US dollar has a negative effect on the competitiveness of US exports and only partially improves the cost of investment abroad. A decline in oil prices resulting in a reduction of natural gas and coal prices is negatively influencing positions of many US trading partners, for whom raw materials are often the only real means of payment for supplies of goods. A drop in their purchasing power necessarily causes a reduction in demand for goods. EU is struggling with huge indebtedness of some of its countries, especially Greece and the resulting risks for its overall economic growth and strategic objectives.

Geostrategic consequences of a ratification remain somehow outside this discussion, especially regarding trade and political relations wih other major players in the global “arena” in particular. As long as the United States – represented mainly by TNKs having strong bilateral positions in each economically more significant country – rely on their political and military authority, Europe’s situation is and can be vastly different. This applies especially to changes in trade relations with traditional partners such as Russia and the South Asian economies, but especially with China. It is evident that a deepening of EU-US bonds will reflect on these relationships in an opposite way since they will have to respond to the new situation.

Growing intensity of discussions between Russia and China about forming a new Euro-Asian partnership, strenghtening of economic relations between BRICSs countries, associated with development of the Asian Investment Bank (AIB) or growing presence of the so called Shanghai club suggest that they seek their own solutions to deepen their own bilateral relations. Analyses of EU trading relations with South East Asia are so far able to confirm an increase. The share of EU exports to this territory was higher than exports to the US (21% vs. 16.6%) in 2013 and was even more striking in the case of imports (25% vs. 11.6%). It does not say anything about how these trade flows will look like if Russia offers raw material exports to the East instead of EU.

According to prevailing expert opions in terms of geostrategy a TTIP ratification will have a dampening effect on EU economic relations with its Asian partners and Russia. Although it will not reflect immediately in the cadence of trade exchange, it will have a significant impact on a decline of EU competitiveness, its overall demand as well as expected socio-economic affairs.

 

Europe and Russia form a historically complementary unit with long-term intertwined internal economic and political interests. Although these are currently less intense due to the Ukraine conflict, this fact cannot be ignored. In the case of ratification, Russia will be forced to redirect its focus on Asia. An exchange of goods for raw materials will mean large investments in networks and logistics which will “tie” Russia to China for a long period of time. Slovakia is likely to gradually lose the status of a transit country as well as the income resulting from this position. Alternative solutions will be expensive and will negatively affect the competitiveness of Slovakia. EU should carefully consider whether the agreement allows it to consistently promote its own economic interests. It should also be carefully considered whether any direct or indirect losses arising from the expected dowturn of trade relations with Russia and the Asian countries will not exceed these for now only potential benefits.

 

Prof. Ing. Peter Baláž, PhD.



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