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Departing from TTIP and going plurilateral

Opposition to TTIP is growing ever stronger in Europe. (Anti-TTIP protest in Bulgaria, 11 October 2014)

Madariaga - College of Europe Foundation
Madariaga Paper - Vol. 7, No. 9 (October 2014)*

Departing from TTIP and going plurilateral

Pierre Defraigne
Executive Director, Madariaga – College of Europe Foundation

*presented to the FEPS conference “The Future of US-EU Relations”, held in Washington DC on 14th October 2014

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What makes TTIP interesting is that it forces Europeans to enquire into their identity, national, European or Atlantic, and to question the European project, economic space or social model, dependant partner or in charge of its own strategic capacity. The timing is right as changes are gathering speed around Europe. China is becoming the leading economy of the world; in the wake of a new world economic slowdown, the Eurozone is entering its third recession and the effects of climate change are being felt in Europe.

The real question surrounding TTIP is whether it reinforces Europe’s ability to preserve the unique values of civilisation that the European societal model incorporates and affirms vis-à-vis the rest of the world, or whether it puts Europe on a dangerous path for her identity and security.

It is not enough to make a critical evaluation of TTIP and to conclude that is will lead to a stalemate, which is what has been done in the attached essay. What is needed is an alternative that is not the current status quo i.e. Europe’s paralysis and impotence in the face of unemployment and rising poverty within Europe and growing instability and insecurity outside Europe. It is also necessary to redirect trade liberalisation towards objectives of common interest for the world.

This short essay recommends putting an end to TTIP as soon as possible but also recommends choosing another path for development for Europe. It would be a shame to waste all the energy that TTIP rallies in opposition of this project, without taking advantage of it to further the causes of justice and responsibility in the face of a systemic crisis of market capitalism that the European institutions are unable to master.

The European people have to be brought together for a commonality of destiny: not a community of security but a community of project. Europe needs to rediscover the taste for testing new social, political and henceforth environmental ways of life, so as to open up the path to transition towards a carbon-free global economy and towards a fair and secure international order for other countries. These issues are also outlined in this essay in counterpoint to TTIP criticism. Europe has to return to its tradition of pioneering society. This essay only recommends putting an end to TTIP and taking the plurilateral route in order to rebuild something better.

Summary

For two decades, TTIP has been the Loch Ness monster of the Atlantic Ocean. Old Nessie has eventually come to the surface in full view following Obama’s State of the Union speech in February 2013, but this time as a two-goal policy with a business agenda and a strategic agenda.

Economists are familiar with Tinbergen’s law: each objective requires its own instrument. Killing two birds with one stone is a fantasy to them. But not for strategists who, at the opposite end, are fond of double-impact actions. And so we have TTIP, a product of business lobbies on both sides of the Atlantic and of the US Administration exploring a new strategy: a pivot to Asia. The EU, finding itself entangled in the Eurozone crisis and short of any strategic vision, but desperately in need of growth and jobs, follows the trend. Karel De Gucht named TTIP “the Transatlantic Internal Market”. Hillary Clinton called it “an Economic NATO”.

TTIP is supposed to both create jobs in Europe and force China to liberalise further on Western terms or face isolation. But it will achieve neither. It will not deliver on growth, nor will it make China yield. On the one hand, the main potential source of growth in Europe is domestic; on the other, China will simply organise its own regional coalition in response to the ‘pincer’ strategy imagined by Washington to contain China through the combination of TTIP and TPP.

On the one hand, the EU growth issue stems neither from a lack of trade liberalisation, which TTIP is suppose to remedy, nor from a competitiveness deficit. The Eurozone current surplus in fact exceeds China’s own in relative terms. The current near-zero growth is the product of the 2008 severe financial crisis and, for the Eurozone, of a sovereign crisis, both which were entirely of our making. We have not been able to accompany the globalisation of the real economy by flanking measures aimed at easing adjustment and correcting growing inequalities. We have let hyperfinancialisation flourish at the expense of the non-financial sector and we have let it generate instability through overindebtedness and speculation. Lowflation and high unemployment are the result of policy failures as much as they are of market failures. Unless the EU tackles head on the problem of the debt overhang, which inhibits public and private consumption, especially within the Eurozone, growth will not resume in Europe. Net exports cannot provide a significant growth driver for a large open economy such as the EU. Commercial policy cannot compensate for the absence of a macroeconomic policy for the Eurozone.

On the other hand, further liberalisation is not first and foremost China’s main challenge although it will certainly happen as a result of an endogenous process. China is engaged in a massive reorientation of its development model, relying on a combination of market mechanisms and policies of which SOEs (State-Owned Enterprises), public procurement and norms setting will be decisive tools. Above all, China must redirect its economic model from an export-led one with little internalisation of social and environmental costs, towards a more domestic demand-led model reoriented towards more consumption, and environmental repair and prevention. What China needs is a more effective social safety net, an environmental strategy and a more market-driven finance. But China’s liberalisation is a matter for the Chinese to decide. Rushing further into liberalisation, as Western business lobbies demand, might not be the priority in Beijing. However, a “decisive” role for the market is part of the grand transformation strategy initiated by the Third Plenum of the 18th CPC Central Committee, along with a radical fight against corruption.

TTIP does not provide the right answer either to EU growth or to China’s fair inclusion in the world economy. The world is moving in a rather chaotic way towards the reshuffling and the rebalancing of the Bretton-Woods multilateral system of governance which was made obsolete by globalisation. Cooperation between China, the EU and the USA would appear today to be the most sensible way to muddle through the period of transition ahead. The US and the EU conspiring against China on the trade front would be a poor and hazardous development for the three largest economies and even more so for the rest of the world. China is the indispensible partner for rekindling world growth, striking a deal on climate issues and working out a stable polycentric international monetary system. Isolating China and sparking a fragmentation of the world economy is very hazardous. Globalisation calls for multilateralism, the most robust and fair set of rules and institutions for managing the relative decline of the West and for allowing the peaceful rise of China and other emerging economies. TTIP would fragment the global economy and increase the risk of trade block confrontation, with no net economic benefit for Europe. Plurilateralising TTIP is the only reasonable way out of a major strategy miscalculation.

Introduction: the unbearable lightness of EU TTIP policy

TTIP or TAFTA (Transatlantic Free Trade Agreement) is a case of trade bilateralism spiralling out of control. Since Robert Zoellick sparked competitive liberalisation (2003), the domino dynamics have eventually led the two main trade partners and rivals to switch from a race for bilateral deals with third countries to concluding an FTA among themselves. How was this move decided? TTIP shows us just who matters in EU trade policy decision-making. On this side of the Atlantic, the offensive has been launched by a business constituency backed up by some Member States. The lobbies include services, the automobile industry and part of the chemical industry, agribusiness and some agricultural niches with AmCham being classed among the most dedicated lobby activists. The main Member States are the United Kingdom, who remains consistent in her special relationship with America and the Nordic countries. But this time it’s Germany, a traditional mercantilist power, who has made the difference in the decision to put TAFTA onto the launching pad. As the leading creditor nation in the Eurozone, Germany was not challenged on this radical move by any other Member State in the European Council. The manoeuvre was replicated in the European Parliament on the joint initiative of the German conservative and social democrat MEPs. As commercial policy falls within the EU’s purview, the European Commission took the lead, putting its formidable expertise to work and reaping clear side benefits for the Trade Commission.

On the other side of the Atlantic, lobbies can once again be found at the helm, at times the same ones as in Europe. The US Administration backed the grand project since President Obama was in quest of an Asian strategy for influencing and, if needed, containing China. What is remarkable in Europe is the ease with which consensus was reached, firstly within the European Council, and then in the European Parliament. Once a coalition was formed between the UK, Germany and the Nordic countries, a consensus was soon reached between the European institutions. Then only did the public uncover the deal. It is uncertain whether there is a constituency for TTIP among the public at large in Europe. Whether inertia for or activism against TTIP will eventually prevail at citizen level is still undetermined.

A TTIP success, far from being warranted, would definitely further skew Europe’s already asymmetric partnership with America. Adding US economic dominance to strategic leadership would dilute Europe’s unifying dream. This would definitely turn the relative economic decline of Europe, which is a statistical fact, into decadence which is a political choice. The nice thing about decadence is that it starts as a smooth and comfortable descent. The weird thing is that it first passes unnoticed even from the main actors who do not realise what they are actually accomplishing.

TTIP is trade policy going into overdrive, a case of the tail wagging the dog. The tool, which is commercial policy, is determining the objective, which is generating growth and jobs in Europe. However, in this case trade is not the right policy. TTIP’s impact on growth will not only be marginal but divisive. Moreover, it will pose severe challenges for the construction of a European commonality of destiny, for the strengthening of the multilateral trading system and for the unity of the world market economy, for the world strategic balance of power and for the cohesiveness and the strength of the Atlantic Alliance. TTIP is perhaps first and foremost a major diversion from Europe’s real priorities. How the EU leadership could, so lightly, make a decision, whose political weight for the future of Europe goes far beyond a Constitutional Treaty, hints at a lack of strategic thinking and serious political debate. It reflects the unbearable lightness of politics at EU level when citizen participation is missing. It also suggests the absence of a European intelligentsia, prompt at discussing substantial issues in depth and beyond a functionalist and a-strategic thinking which forms the main stream in Brussels.

1) TTIP: one bridge too many over the Atlantic

In Trade Commissioner Karel De Gucht’s words [1], TTIP is about creating a “Transatlantic Internal Market”, a very ambitious goal indeed, whose emphatic character nowadays however embarrasses some of its key promoters who would have preferred a lower profile for their project.

TTIP is an extensive and comprehensive FTA with four pillars:

Market access encompasses tariff liberalisation (the easy part), services (uncharted waters), and public procurements (a highly controversial issue because of the Buy American Act and the autonomy of local states). Tariffs and quotas reflect offensive and defensive economic interests while public procurements are often used as industrial or regional policy instruments.

Regulatory convergence is the critical issue. When norms and standards are different, they amount to zero quotas unless there is mutual recognition which is an extremely tricky procedure. At present, NTBs (non tariff barriers), for instance TBT (Technical Barriers to Trade) and SPS (Sanitary and Phytosanitary Standards), constitute the main remaining barriers to trade between advanced economies. They are not however, only obstacles to trade. Behind-the-border regulations are substantially different from tariffs. They have an impact on trade, but their main purpose is not to contain imports but to protect health, the environment and societal values. This includes domestic production as well as imports. On the one hand they reflect collective preferences, on the other they reflect technical differences which are sometimes used as protectionist tricks. In the US and the EU collective preferences differ considerably on matters such as the precautionary principle illustrated by the beef hormone dispute, chlorine chicken, GMOs, data privacy protection or by the preference for ex-ante regulation over ex-post litigation and class action. In such cases, the harmonisation of rules and standards is no longer just a trade negotiation. It amounts to a true legislative process. TTIP focuses on regulatory convergence which implies harmonisation or mutual recognition. However, it is written in the Commission services’ Frequently Asked Questions section that ‘the high level of protection is not negotiable!’. If this also proves true from the American side, then the negotiation will amount to picking the highest level of protection every time, a very comforting thought for the general public on both sides of the pond. But then what about mutual recognition? In the absence of harmonisation it would become impossible. Moreover, if TPP (Trans Pacific Partnership) negotiation takes precedence, the US will use its outcome to twist the arm of the EU in TTIP negotiations. This would create a dilemma for the EU Commission, capitulate or abandon TTIP altogether?

Common rules extend to labour (ILO conventions), the environment, intellectual property (geographical indications), energy and raw materials (crucial exportations for global output chains), all highly sensitive issues.

Trade disputes would be handled through a settlement mechanism between states (with the WTO Dispute Settlement Mechanism as the procedure to fall back on). However, a far more controversial arbitration clause has been added to the negotiations mandate. The ISDS, (Investor State Dispute Settlement) grants large foreign companies– SMBs (Small and Medium Businesses) are de facto not among potential users – the right to get compensation from a state for legislation deemed detrimental to its interests. Sidestepping national courts becomes therefore a jurisdiction privilege for big foreign businesses. Is this acceptable in a democratic, rule of law based society? Does it fit with our constitutional order or with our understanding of the relationship between market forces and democratic institutions according to Western European political traditions?

From these four pillars, one can see that the negotiation is not about the setting up of an umpteenth free trade area, through a tit-for-tat deal on tariffs and quotas. It is about legislating together. However, harmonising regulations is a completely different process. Were such a programme to be achieved, TTIP would look like a sort of Transatlantic Internal Market, but without the common, transparent and democratic institutions for running it, or the structural funds for easing real convergence among participants, either across the Atlantic, or among winning and losing Member States.

2) Six objections to TTIP

2.1) Marginal and divisive growth
Growth is the main rationale put forward for justifying TTIP. A CEPR study financed by the Commission estimates that by the end of a 12 year transition, TTIP will have secured an EU GDP additional growth of 0.5% provided that the negotiation liberalisation objectives are fully met with regard to tariffs, NTBs and public procurement. 0.5% is a very low figure and ex-post analysis usually proves that such forecasts are very tentative and are usually overrated. In the case of TTIP, which is the first FTA the EU is negotiating with a somewhat larger and more advanced partner; three major risks cannot be ignored.

2.1.1) A modest growth figure
Why is the figure so modest though? This is essentially for three reasons. Firstly, no one challenges the idea that trade liberalisation is conducive to long term growth if only through its transformative impact. Yet the more differences there are between partners, the higher the trade-led growth. This is the case in multilateral deals with broad sectorial and geographical coverage. It is less obvious when resource endowments and productivity levels are very similar between partners like between the US and the EU. Transformation benefits are then minimal but restructuring costs can be high.

Secondly, the US and the EU have already completed a high level of integration in the goods sector through massive crossed investments, aimed at turning the regulatory obstacles around and providing 7 million jobs on each side of the pond. Harmonisation would mean partial job repatriation. In the services sector, which is less integrated, the expected benefits will be limited by imperfect competition (monopolies, oligopolies, market power) resting on economies of scale, network effects and branding. US firms often enjoy the advantages of being the prime movers, such as in information technology and digital industries and services. Moreover, it is unlikely that efficiency gains in sensitive sectors like health, education and public utilities, for which pressure for de facto privatisation schemes will grow, will be felt by the consumer. They will be monopolised by the shareholders of large firms. Restructuring will take place through privatisation and through mergers and acquisitions, and their eventual growth impact and distributional effects are not clear. In the case of “public goods by choice” (health, education, water), the political dimension cannot be ignored. In this case, market liberalisation can conflict with democracy and therefore come into severe conflict with public opinion.

Thirdly, TTIP promoters completely ignore an assumption which trade theoreticians deem critical: trade allows for an increase in productivity as imports free up already employed resources so that they can be redirected into more efficient uses. The current high level of unemployment in Europe severely limits this crucial gain from trade liberalisation. In fact, trade liberalisation in the context of severe unemployment can very well generate no additional growth at all. Unemployment must first be brought down by domestic growth policy.

2.1.2) A diverging growth
The overall additional EU GDP growth of 0.5% guaranteed by TTIP would translate into further divergence within the Eurozone and would aggravate domestic inequalities within countries. Some countries such as Germany and its Nordic neighbours will benefit but other countries will lose out. However, unlike the US, neither the EU nor even the Eurozone, have any effective political mechanisms for redistributing gains and losses among Member States and among social groups [2].

2.1.3) A clash between two social models
Contrary to the proponents of the so-called trigger-down growth theory, trade does not amount to a win-win game and does not necessarily alleviate poverty. If trade proves a win-win game in the long term, there are winners and losers in the short and medium term. Most trade economists dismiss or overlook these distributional issues and deem them irrelevant. They insist that growth matters more than fair redistribution. This is challenged by the school of inclusive growth which highlights the social and economic costs of excessive inequalities. Distributional effects of trade liberalisation are critical since nowadays they provide the main source of citizen mistrust vis-à-vis markets, governments and the EU. Moreover, the IMF has recently acknowledged the deflationary bias of growing inequalities.

The most serious problem posed by TTIP will be the social cost for Europe of the large restructurings that would arise from the mergers, acquisitions, closures and privatisations brought about by the completion of a single transatlantic market. The economic law of a single price for goods and services in a unified market tends to make factor prices i.e. wages and profits converge. The communicating vessels process is very effective for the labour market. In the context of unemployment, labour prices will be pulled downwards and the unequal income structure prevailing in the US will weigh on the European wage structure. In such a context, productivity gains brought about by economies of scale will not translate into higher wages, but into lower ones. The transformative effect asserted by TTIP proponents might in the end just be an overall degradation of working conditions and of the Welfare State. Ignoring this high risk scenario against the current populist backcloth in Europe would be politically hazardous.

In conclusion, the main rationale for TTIP might not withstand the decisive test of growth. The truth about growth and jobs in Europe – a large economy where the macroeconomic impact of external trade is limited – is that the solution does not lie under the lamppost of trade policy. The Eurozone has entered into a ‘lost decade’ for growth. The EU can be caught in the ‘secular stagnation’ recently highlighted by Lawrence Summers, whilst deflation becomes a short-term possibility for the Eurozone.

Growth has come to a halt in Europe for both supply-side and demand-side reasons. On the supply side, which is decisive for the long-term potential output, Europe is lagging behind on innovation, both technological and institutional. The relative cost of labour to capital is too high. Energy costs are relatively more expensive than in the US. On the demand side, which is at present the most critical element for attaining the potential output level, the debt overhang, both public and private, severely inhibits consumption demand. Moreover, as highlighted by the IMF, growing inequalities – the poor spend, the rich save – also exert a deflationary impact. Fiscal austerity, when procyclical as it currently is, aggravates the poor growth performance and further deteriorates the debt/GDP ratio.

The way to resume growth is not through trade, which for Europe is a necessary but auxiliary growth engine. Today, only domestic policies can spark growth in the Eurozone: first, mutualisation and restructuring of debt through a transfer union with fiscal discipline would prove very effective; second, massive innovation investments hanging from R-D and education to transeuropean networks would boost both long-term competitiveness and short-term job creation; third, fighting inequalities through national social policies would be eased by EU tax harmonisation.

The expansionary impact of domestic policy-driven Eurozone growth on transatlantic trade would by far exceed the growth impact of bilateral trade liberalisation. In the trade and growth nexus, causality undeniably goes both ways. Growth feeds trade as trade feeds growth, depending on the economic context and on the type of trade deal. TTIP is definitely not the right answer for resuming growth, either in Europe, or in the US. However, a growth policy would boost Atlantic trade.

2.2) A weird legal basis for a transatlantic common market
A question also arises about the legal basis. Is the EU trade policy the right instrument for achieving such a comprehensive and far reaching project? Is the Lisbon Treaty article 207, the proper legal basis for approximating legislation between two continents? Is it not a case of legal overshooting which by the end will undermine the solidity of the trade policy itself? Does one hope to decide about societal collective preferences, and not just trade interests, through usual trade policy procedures?

First, negotiations with a third party essentially imply some degree of confidentiality, while setting up common norms and standards should be transparent and under European Parliament control. Second, the discussions are confined to the Trade Policy Committee in the Council and to the INTA Committee in the Parliament. Third, the ratification by the European Parliament and the 28 national parliaments relates to a global undertaking – nothing is agreed until everything is agreed – which rules out the right to amend the text. Last but not least, the whole thing is subject to final approval by the US Congress, a most unpredictable legislative body which has not yet granted the Obama Administration the security of the “fast track procedure”! This set of serious difficulties hints at the deep ambivalence of TTIP. Are we keeping the Single Market as the cornerstone of the EU political project and do we strengthen it in an autonomous way, or are we subjecting it to a twin track harmonisation, one between Member States and one with the US? This ambivalence poses a fundamental problem of democracy and of identity for the EU.

2.3) The asymmetry between a formidable power and a loose coalition
La Fontaine told the tale of “the alliance between the iron pot and the clay pot”. The paradox of the fable lies in the friendship between the iron pot and the clay pot walking together on a bumpy road. Yet it’s the iron pot that involuntary breaks its fragile companion.

The asymmetry of the negotiations between two very different political and economic powers, an iron America and a clay Europe, stems from their respective features and policy orientations.

- Unity: the US as a fully fledged federal state, has achieved unity in all sectors, and speaks with one voice although ubiquitous lobbycracy in Washington is a serious handicap for the continuity and consistency of US trade policy. America has a single currency, a sizeable federal budget and formidable strategic clout over the EU through NATO leadership. The EU’s economic integration is still a work in progress as regards energy, banking union, financial services, telecommunications, digital services, defence industry and services. Moreover, it is a two-speed Europe with one euro and eleven other currencies. Last but not least the EU has no significant budget to address distributional issues between winners and losers among Member States and within them, except the marginal European globalisation fund.
- Currency: Can one imagine a true transatlantic internal market with two world currencies, the dollar and the euro, in competition with the inherent risk of creeping currency wars in which the FED would have a serious edge?
- Energy and therefore climate strategies, which are central for competitiveness and for the consistency of a multilateral economic order, are sensitively different. How does one reconcile them? Is it part of the negotiation?
- Formidable Hollywood and a dominant US digital industry represent an effective threat for European cultural diversity. The French cultural exception might just eventually prove a fig leaf. Only an industrial policy can restore the balance between the US and the EU in this critical area for Europe’s re- industrialisation and cultural diversity. Would a common transatlantic market ease or hinder such an ambitious European strategy?
- US legislation extraterritoriality might sometimes carry unexpected benefits for third countries but proves a serious issue in taxation matters (FATCA) and in financial sanctions, as the dollar is the main international transaction currency. Is it compatible with a Transatlantic Internal Market?
- Can the EU simply ignore the issue of electronic surveillance by the NSA (PRISM), which allows for an asymmetry in strategic information, even in TTIP negotiations?
- Last but not least, the power of lobbies has become a dangerous feature of advanced democracies. However, in the US, lobbies – a heterogeneous group – exert an excessive power of influence on the President and the Congress through fundraising for election campaigns. In the EU, lobbies are less powerful and effective. Yet they by far outweigh public interest groups and trade unions in the trade policy consultations by the Commission.

2.4) The damage done to the multilateral trading system by TTIP
Bretton-Woods multilateralism has provided the world with 30 years of economic growth following World War II. Its initial purpose was mainly political: building up an international system geared towards support, across the IMF membership, of New Deal models through trade liberalisation and monetary stability guaranteed by capital controls. Because of the Cold War and the persisting colonial and post-colonial system, it was the West and the North that primarily reaped Bretton-Woods benefits. America gradually abandoned its role of guardian of the Bretton-Woods mainly by decoupling dollar from gold and pushing to replace solidarity between countries through the IMF by entrusting financial markets, through deregulation and floating exchange rates, with the responsibility of preventing and correcting structural deficits and surplus, which actually did not work.

However, market-driven globalisation has taken over and has succeeded in eventually bringing about a certain North-South convergence through the rise of Asia, driven by China’s Renaissance. This change in the power balance between emerging and advanced economies must translate into a new type of governance. This governance model must build up on Bretton-Woods foundations, and must definitely retain its multilateral character, but with the rebalancing of voting rights and enough flexibility to allow for the diversity of development models in economies that are catching up. TTIP goes in a different direction by substituting pressure with negotiation and by imposing a ‘one-size fits all’ reference model.

An EU-US deal would further weaken a multilateral trading system already undermined by a chaotic flurry of FTA deals and by the competitive liberalisation race triggered by the US.

- The coalition of the two largest trading powers would entail a trade diversion effect for the rest of the WTO membership.
- A regulatory coalition of the declining hegemons amounts to an attempt to twist the arm of emerging nations with regard to norms and standards.
- However, emerging nations have the right to develop their own norms and standards for their domestic markets which are expanding faster than in advanced countries. This is where the real trade-off between the West and China comes though: regulatory harmonisation for access to rising markets.
- TTIP will either create the risk of a regulatory divide or will constitute a regulatory domination of the West over emerging countries, two scenarios which are incompatible with the spirit of multilateralism.

2.5) TTIP as a geopolitical hazard

2.5.1) China as the indispensable global partner
China, soon to be the leading economy of the world within a decade, is rising today as a dominant player in a strategic vacuum. The Cold War has been over for 25 years. Pax Americana ended with the chaos brought about by the post-9/11 Iraq War in 2003 and by the US debt crisis in 2008. Today, America and Europe are looking inwards. They have let a dangerous strategic vacuum set in. They react to external threats and challenges but they do not anticipate them, even less so try to prevent them by setting up a robust multilateral system. As China develops in a systematic and ongoing manner and is about to reach a global status, its rise causes angst in the West. China however has no colonial past and so far has not displayed any hegemonic ambition. What makes China different though is its sheer size: it is responsible for 1.3 billion people, one-fifth of the world’s population. This makes China’s Renaissance an unprecedented geopolitical stake. China is experiencing the typical paradox of a large rising power: as it rises, its impact on the world gets larger, but so does its vulnerability. The dependence on commodity supplies and export markets increases. The race for natural resources, a geopolitical risk in an unstable environment and the probability of protectionism brought about by the protracted crisis in the West both represent threats for China’s future development. Therefore, the attitude of the established powers is critical: will the US and Europe ease China’s peaceful rise, which would allow them in turn, to ask Beijing to restrain its strategic build-up and to engage more actively in multilateral governance? Today, China is indeed a global player who cannot be ignored when it comes to supporting world growth and ensuring financial stability, and to clinching a fair and effective climate deal. The EU and America are trying to fill this strategic void with a defensive coalition, but without a long-term vision of the new international order that needs establishing. This might prove very hazardous.

In the meantime, China is rising fast, getting stronger and building up a strategic capacity which will turn this continental power into a maritime power, a rival of the US in the Pacific region.

2.5.2) US and EU back to domestic agendas
After the 2008 financial shock, which heralded America’s relative economic decline, and after repeated failures on the external front, the US has decided to abandon its imperial stance. Despite its persisting strategic hegemony and its unique innovation capacity, it has entered into a phase of introspection. It is coping with the social and political divide caused by the end of the American dream and by the ill-functioning melting pot under massive Hispanic immigration. The defeats suffered on the external front after the Korean War (Vietnam, Iraq, Afghanistan) have discouraged the American people from supporting distant wars on the ground. A divided America is on the defensive.

The EU has also been looking inwards since the sovereign debt crisis broke out in 2010. Moreover, beyond the rescue of the euro, its Member States are divided on crucial issues for its political unity such as the social model, Eurozone governance, the eastern borders, the definitive institutional setting and the degree of strategic responsibility and autonomy vis-à-vis the US. These internal differences have led to a multi-speed Europe. As such, the EU no longer thinks in geopolitical terms, and neither do its Member States. The big states, such as the UK, France, Spain, used to develop a Weltanschauung as they ran world empires. But the EU never did. Germany as a late comer and as a continental power has always been more centred on Central Europe and on the East. Today though, Germany dominates the EU stage. It is a mercantilist player who is also a reluctant geopolitical power, contrary to France and the UK whose military capacity is today severely hampered by financial constraints. However, the EU as such has developed neither a common strategic vision, nor even a foreign policy of its own. The absence of a common defence and the constraint of consensus make Europe an episodic player on the world stage, mostly confined to its own neighbourhood. The EU can only act in a decisive way under US leadership as witnessed in sanctions on Russia in the Ukrainian crisis. Europe is a follower, and it follows a leader, the US, who is itself confronted with severe economic, social and political problems at home, and who is unsure about the world order it wants to develop.

2.5.3) Isolating China or “multilateralising a multipolar world”
By pivoting towards Asia, the US is trying to contain China’s strategic rise and it is doing so by a mix of cooperation and confrontation, and of engagement and containment, relying on a “pincer” strategy which uses TPP and TTIP to circumvent and isolate China. This option, which is unreservedly supported by the EU, is a serious strategic mistake because it would lead to the development of trade and currency blocks and to commercial rivalry with the inherent risk of entering into military conflict. China is too big to be left on the sidelines. Its participation is needed to provide the global public goods the world needs: free trade, financial and monetary stability, climate change control, net regulation, cybernetic peace.

The issue today is “multilateralising a multipolar world”. The EU must play its full role as a global player in this process. If it remains as it is today, a loose and aimless coalition, it runs the risk of being sucked into an adventurous US strategy, of the sort, “the West against the Rest”.

Europe should fight for a rule based system –supported by a solid balance of power – to make room for China at the table of advanced economies. In order to play this go-between role between the US and China, the EU must reach political parity with the US within the Atlantic Alliance, a completely different ball game from TTIP.

2.6) Complicating the quest for a European identity
TTIP will aggravate Europe’s already ingrained difficulty to build up its own identity. From the very beginning, Europe has been a hybrid construction mixing federal and intergovernmental features. However, more importantly, it has developed a schizophrenic personality. It still cannot decide whether it wants to build up a true European political community with its own model, its own currency, and its own defence; or constitute a subset of a broader Atlantic Alliance, in which its economic affiliation to the US supplements the strategic NATO partnership. TTIP exacerbates these feelings of ambivalence and Atlanticist tropism which would interfere with Europe’s drive towards political unity.

This last objection to TTIP is the most decisive, but it is also extremely difficult to express in clear and convincing terms. For those who see Europe mainly through business lenses, the very idea that a Transatlantic Common Market would put the attempt to build up a sense of a common destiny among European citizens at risk is irrelevant or even ludicrous. Yet this is the crux of the argument against TTIP: one must choose between Europe and TTIP.

2.6.1) Shared interests and values
The US and the EU share important interests and values. There is no doubt about that. They also have a common history: three times in the last century they have fought together against German imperialism, against Nazism and against Soviet Communism. Europe became beholden to the American people for their help during those conflicts as well as to the New Deal, the Bretton-Woods system and the Marshall Plan. Today, EU-US economic relations- without TTIP- are deep and close thanks to the vitality of their trade relations and to massive crossed investment. Intellectual and cultural links are innumerable and lively. Above all, with NATO, America and Europe have set up a strong strategic alliance whose direction and leadership today however call for clarification and rebalancing: Europe should contribute more to the defence burden and in return should have more say in strategic management.

2.6.2) But very different indeed
However, for all this precious and robust economic and strategic partnership, there are also deep cultural differences which bear directly on the way the economy, the social model and society are organised and on the way they work. As Kagan so well and clearly conveyed it: ‘Americans are from Mars and Europeans are from Venus’. Kant inspires Europe and Hobbes inspires the US. As a result there is little American reserve with regard to unilateralism while Europe has a preference for multilateralism.

Cultural differences are even more significant. They stem from the sheer diversity of Europe compared to the homogeneity of America with regard to language, the role of religion and secularism, labour conditions, social security, pensions and the health system, education, mobility, rural landscapes and urban planning, and so on. Some differences stemming from history are very sensitive and loaded with deep meaning: America has never been invaded and has not fought a war on its own territory; slavery and racism have left their mark on society; death penalty is a terrible security response to violence in poor suburbs. America also has its strong points: passion for freedom, sense of individual responsibility and accomplishment, innovation, entrepreneurship, service to the community, opening up to migrants from all over the world, risk-prone attitudes. All these unique American qualities forbid Europeans from claiming any superiority and from taking the moral high ground. Europe’s colonial and post-colonial past, the Shoah and Lampedusa are no better than slavery, Guantanamo and Ferguson. There is no room for black and white moral judgment here. Taking a purely anthropological perspective is enough to account for radically different political attitudes.

2.6.3) Linking market capitalism and democracy
However, these cultural differences, some positive, some negative, as seen from a European perspective make collective preferences in America and in Europe very difficult to reconcile. Further, the main singularity of Europe is the way democracy has progressed over the last one and half century, in interaction with capitalism. Social and political struggles surrounding the fair distribution of value added have shaped up the various social and political models which coexist in Europe. But they all recognise that social justice matters, and that it constitutes a condition for true liberty. Hence Europe’s deep attachment to the Welfare State despite its undeniable shortcomings. Over the last three decades, the environment has also become a major concern for European citizens. This unique relationship between market forces and democratic forces is the hallmark of Europe.

2.6.4) The European preference for equality
This is reflected in the radical difference of collective preference for equality between the US and Europe. Equality was a hallmark of America in Tocqueville’s days, but today it has been completely wiped out by the extreme concentration of wealth which is deliberately sought by Wall Street and accepted by most of the Establishment. The result is an American obsession for security as a substitute for justice.

Since the French Revolution and the social struggles of the XIX Century, preference for equality has become the mark of Europe and this ingrained feature persists today despite the crisis. In Europe, Member States have a tradition of regulating market capitalism more strictly than in the US, whilst also ensuring a higher level of solidarity. To this end Europe spends 50% of world social transfers while contributing to around 25% of world GDP. Debate on the so-called “social market economy” is fierce in Europe between and within Member States with some wanting to strengthen it and others wanting to alleviate it. It is a highly political debate which should be held between Europeans, through EU and Member State democratic institutions. By its very dynamics and because of the sheer weight the US has in the partnership TTIP would eventually tip this very intimate and fundamental confrontation towards a more inegalitarian model. America should be kept off this private land. The issue at the centre of the debate is the soul of the Europe of the future: What sort of society, violent or fair, do we want to build up together? What sort of world do we want to build up with other countries, bipolarised or multilateral and based on negotiated rule of law or imposed by a balance of power? At the end of everything, this debate is about humanism and universality, two genuine European values inherited from Europe’s Judeo-Christian roots and from the Enlightenment cultural revolution.

The US and the EU sharing the same market, given such a deep cultural and ideological divide, would be very risky for the European project. Whether business lobbies like it or not and whether politicians have made a right or wrong assessment of public sentiment in Europe towards a common market with America, opposition to TTIP is growing and it will not retreat despite bashing by consultants, lobbies and business lawyers. The European people will not want to trade off a 0.5% average increase of GDP growth for sharing their “societal sovereignty” with America. Collective preferences for a social market economy are at the heart of European identity, which is so difficult to forge. Ignoring these differences would compromise Europe’s progress towards unity through a European social contract.

2.6.5) Building up a sense of commonality of destiny
In its long march towards unity, the EU is indeed at pains to mobilise the European citizen at the grass-roots level. The European demos remains elusive despite half a century of direct elections to the European Parliament. It is precisely the absence of a sense of European identity that is critical to the European project. Identity is perhaps not the right word. Conscience sounds better. European conscience is a matter of reason, not of sentiment. However, it is proving difficult to develop a perception of commonality of destiny in Europe among the public at large, primarily because of the original division of labour between NATO and the EU. In 1949, Europe abandoned strategic responsibility to America while from 1950 the economy was entrusted to the EU who was put in charge of setting up a Common Market. This split lies at the core of Europe schizophrenia, a key obstacle to the perception of a common destiny.

TTIP would actually aggravate the current asymmetry of the Atlantic partnership by adding economic dominance to strategic leadership. Economic dominance would also complicate the highly political task of making social models converge upwards into a common one among Member States.

It is strange that European elites have lost view of the fact that, since their inception in 1992 and 1999, they have turned the Single Market and the euro respectively into the two cornerstones of European identity. Today they are ready to dilute this unifying project, however trivial and imperfect, with a “Transatlantic Internal Market”. The ordinary citizen will not however buy this grand design. This citizen has the intuition that the European establishment is making a historic mistake. TTIP has no popular constituency in Europe. Europeans know that “He who hunts two hares leaves one and loses the other”.

2.6.6) For a strategic partnership on a par with America
TTIP forces us to reassess the Atlantic relationship. The fact is that Europeans make most of their strategic choices in an implicit way, sometimes by stealth and under the pressure of current events. This makes it very difficult to draw a clear-cut distinction between Atlantic allegiance and European autonomy. For some in Europe, this distinction is even deemed irrelevant since there is a de facto hierarchy between the US and Europe which exists because of the strategic asymmetry within NATO and because of US economic dominance. The very same people would not object to a vast Atlantic Community encompassing a single market and sharing the same currency. Most key players are not aware that TTIP could surreptitiously evolve in that direction.

Keeping the right distance between the US and the EU is proving a difficult exercise. Yet between succumbing to subservience, which is so well spread among some European elites, and indulging in anti-Americanism, a posture often shared by the extreme-right wing and the extreme-left wing, there is room for a healthy and balanced relationship. A balance should be drawn between cooperation and autonomy; between the coordination imposed either by Washington or by Wall Street, and the sufficient level of European strategic sovereignty, which implies fairer burden sharing and consequently a real say on defence.

This balance which is at the heart of the transatlantic relationship will be difficult to achieve so long as Europeans remain unclear on two issues: namely a common European social model and a European Weltanschauung, a strategic vision of the world. So far these two concepts elude present EU leadership. In fact, TTIP illustrates the disarray, in terms of strategy, of the EU leadership. Those among the European elites, who see the world through business interests – however important and legitimate – and security concerns, are trying to rush into a narrower Atlantic relationship because they do not trust Europe’s ability to reinvent itself as a pioneering society, exploring new patterns of sustainable development resting on freedom and justice in an interdependent and multipolar world. There are “eurosceptics on the inside”; the most dangerous breed because they feed a sense of “Europe fatigue” at the top of the EU institutions. Moreover, they do not know America. They overlook the huge intellectual and moral resources of liberal America, which is repressed by neo-lib and neo-con thinking and the deleterious Tea Party crowd.

By simply being themselves, Europeans can speed up the comeback in America of a New Deal spirit for our time. By being itself, Europe can be a more reliable partner for the US within the Atlantic Alliance, a partner able to influence, able to inspire, able to convince. TTIP is the opposite of a true Atlantic partnership, an allegiance rather than an alliance; a coalition for prolonging an ancient order rather than an alliance for building a new one. Europe’s prime vocation is to play social cohesion within Europe and inclusive multilateralism outside. Europe must place itself in a position to influence America.

3) Conclusions: plurilateralising TTIP and put our own house in order

3.1) First trade off: exclusive versus inclusive growth
TTIP is about two tradeoffs. The first is between the efficiency gains brought about by regulatory convergence and the type of society people want for themselves; more or less equal, more or less protective, more or less violent, more or less open, more or less sustainable.

For decades, trade liberalisation was associated with growth but this process has reached a plateau: it has entered a zone of diminishing returns in terms of growth and of increasing social costs in terms of rising inequalities. A gap is widening between the business agenda focused on profits and the benefits for the people in terms of jobs and wages. There is a clash in the making between big business and finance on the one hand, and the middle class on the other. This is the case in America, in Europe and even in China. The main reason for this is the lack of priority attached to distributional issues, which are coming back to the forefront of the political domestic agenda through the rise of populist and nationalist forces.

Governments must address this problem. Firstly, in Europe, they need to untie the Gordian knot of overindebtedness and make the Eurozone governance more effective so as to avoid the risk of deflation. In America, Republicans and Democrats must work out a consensus on a new type of New Deal with regard to taxation, health care, infrastructures and education. In China, rising wages and an effective social safety net should raise household consumption while environmental damage should be brought to an end. The three largest economies must first put their own houses in order so as to create the domestic conditions to be able to further deepen trade, regulation and investment liberalisation at a later stage.

3.2) Second trade off: security through rule of law or through balance of powers
The second trade off is to do with security. Security mainly obtained either through a balance of power in a bipolarised world between China and America, with Europe sucked in a “West against the Rest” strategy, or security built in within a multilateral system of rules and institutions providing a rule of law through negotiation and ensuring cooperation and solidarity against the common threats: from pandemics and climate issues to cyber war and terrorism. Power balance and multilateral law are not exclusive systems; they will always coexist. Which rationale will eventually prevail critically depends on Europe’s position, either as a dependant partner, or as a partner on a political par with America. TTIP is surreptitiously paving the way towards an allegiance rather than an alliance.

3.3) Europe’ s commonality of destiny
TTIP is first and foremost a formidable distraction from EU priorities which, from a growth and jobs perspective, should focus on completing the unity of the Single Market, consolidating Eurozone governance and remedying its dangerous drift towards deflation. From a more political standpoint, the EU should tackle the construction of its own strategic capacity which conditions the possibility of an effective EU foreign policy aimed at promoting EU interests and values which differ from US ones.

Europe must reassess the Atlantic relationship in the light of its own long term future which does not yet appear very clear to most Europeans, and does not even achieve consensus among governments. However, whatever the institutional forms the EU takes or the exact geographical territory it covers, Europe will have to come to terms with two challenges: the first is the choice of a common social and environmental model as the benchmark for all national ones so as to reconcile the unity of the EU’s Single Market with the free circulation of people, production factors, goods and services and to share the governance consistency of the Eurozone. The second is a sufficient degree of strategic autonomy so as to take responsibility for defending the model, which reflects not only a way of life but deep and important values which make up the European civilisation. This construction calls for a sense of commonality of destiny, which would provide the EU with a shared transnational identity beyond national identities.

3.4) Ultimately trading off TTIP for plurilateralism
Without a doubt, a global world needs multilateral governance. Strengthening the WTO, however means firstly going via the plurilateral route so as to sidestep free riders and to ensure practical reciprocity on services, public procurements, environmental goods and services, norms and standards, intellectual property and competition. Ensuring financial stability and preventing currency wars in an increasingly polycentric monetary system is the second challenge. The third one is climate change, a matter of life and death for some populations which calls for a drastic change in our consumption and production patterns. Some see TTIP as a clever tactic for paving the way towards open plurilateral deals, but its divisive tactics might backfire and create irreversible international tensions.

TTIP would put Europe and America on a path which undermines the multilateral trading system at a time when the overall multilateral governance needs to be mended, rebalanced and reinforced so as to adjust it to the new multipolar structure of the world economy. By leaving China outside the scope of TPP and of TTIP, the US and Europe are running the risk of isolating this great emerging nation, with the subsequent prospect of pushing it towards an alternative strategy, i.e. forming a regional normative coalition with its neighbours so as to pursue its expansion by retaining the dynamism of its domestic and its regional markets for its companies. The EU and the US should be more careful about uniting against China. Their alliance will be perceived as two declining hegemonic powers attempting to dictate their rule to emerging powers. Instead of engaging in the construction of a new international economic order, TTIP is trying to prolong the ancient one.

There is still time to stop the hazardous process of TTIP or rather to let it sink into the moving sands of popular contestation. An early harvest would serve as a face-saving device. A “plurilateralisation” of TTIP including China would however be the best possible outcome. It would represent a first step towards more balanced multilateral governance. The European Commission must reassess TTIP and propose to change tack before the whole process derails into frustration and acrimony with an unexpected paradox, a weakening of the strategic Atlantic Alliance.

Footnotes:

[1FT 13 February 2013

[2If the growth impact on EU/US GDP were higher (Bertelsmann study) than in the CEPR estimates, the diversion costs for third countries would also be much higher, in particular for China.


 source: Madariaga - College of Europe