At the lowest point of the EU’s recession, when the eurozone was in crisis and the region’s GDP was flatlining, the notion of a free-trade agreement between the EU and the US, which had been on the agenda for ‘Atlanticists’ for decades, suddenly gained momentum.

By the lakes of Northern Ireland's Lough Erne at the G8 summit last year, it was announced that negotiations for the Transatlantic Trade and Investment Partnership (T-TIP) would commence. Talks are ongoing, the latest round was in May, and there are hopes that they will conclude over the course of 2015.

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This is not the only ambitious, multi-country, inter-regional free-trade agreement currently being negotiated. There is also an agreement in the making between 12 countries of the Pacific Rim, including the US, Canada, Australia and Japan, known as the Trans-Pacific Partnership (TPP).

Mega-regional agreements

Both these agreements’ mega-regional status is well-earned: if and when the TPP is agreed, the partnership will apply to countries that together generate 40% of global GDP and one-third of world trade, according to the Office of the US Trade Representative (USTR).

Similar blockbuster numbers apply to the T-TIP agreement. The EU and the US trade $2.7bn-worth of goods and services every day. The T-TIP, if realised, would be the biggest agreement to date by volume of trade.

As Warren H Maruyama, a partner at Anglo-American law firm Hogan Lovells, puts it: “These agreements are ambitious both in terms of the amount of trade covered and scope, and would set a high standard for future agreements.”

The deals are also significant because they are between equals, making them different from what has come before, argues Peter Chase, vice-president for Europe at the US Chamber of Commerce, particularly in respect of the T-TIP. He says: “This trade coalition is unique because both the US and the EU are similar $16,000bn economies. [The US is] not accustomed to negotiating with someone our size.”

Removing barriers to trade

The aim of these bilateral agreements is to remove tariffs and trade barriers, as well as attempt to harmonise regulations and to converge labour and environmental standards, which, proponents argue, stand in the way of trade. 

The agreements will also include provisions on investment protection usually found in bilateral investment treaties, namely preventing a government from discriminatory treatment of foreign companies, ensuring fair and equitable treatment between foreign and domestic investors and barring expropriation (or at least without compensation). With investment protection comes litigation and so the agreements will also set out dispute resolution mechanisms.

There are already bilateral investment treaties between some of the countries involved in both these deals; eight between countries in the T-TIP and 21 in the TPP, according to the UN Conference on Trade and Development. But proponents argue that these new agreements should consolidate and rationalise investment protection, as well as deal with those countries where there are not bilateral investment treaties in place.

Securing investments

Impetus has also come from multinational businesses, which have been keen to ensure that these elements are included in the agreements to provide greater security for their investments. “The investor elements are very important within the TPP to protect investors from potential violations of which some parties have shown themselves capable and promote increased investment flows,” says Mr Maruyama.

For the T-TIP, investment figures between the EU and the US are already very healthy: investment from the EU into the US in 2011 stood at $1600bn with about $563bn going into manufacturing. From the US to the EU, the figure was $2090bn in 2011 with $245bn going into manufacturing, according to the US Bureau of Economic Analysis.

Mr Chase believes that it is these high levels that make the EU and US relationship unique. He says: “We have an intense investment relationship rather than a trade relationship here. If you look at Japan and the US for instance, there is just no comparison.” In the same year, Japan invested less than one-fifth of what the EU did into the US.

Is it really necessary?

The question arises then, whether, with investment levels being so high, an agreement is needed at all, particularly as the investor-state dispute elements are not really necessary: the US and the EU already have robust domestic rules and remedies to protect foreign investors. Investment protection has also sparked huge controversy in civil society in the US and the EU. A number of non-governmental organisations have sounded alarm bells that investment protection for foreign investors constrains the powers of national governments and creates more litigation. So why provoke this kind of reaction?

Mr Chase believes that an EU-US trade deal is logical because both regions are very similar. “Both are democratic. A lot of people talk about democracy as a platitude, I talk about it as operational. It’s about what our people want but also about what our politicians do. We also have the same sorts of desires when we talk about protecting consumers, protecting workers, looking after the environment. So why not harmonise and simplify those elements?” he says.

There is still a long way to go, however. The TPP negotiations, for instance, have been running for more than three years and there is, as yet, no obvious end date. Mr Maruyama is sanguine about this. “These things take time. The parties have substantially narrowed the issues from where they were. Perhaps also there has been a tendency to raise unrealistic expectations on the timetable in hopes of accelerating the negotiations, but this may have backfired,” he says.

Even if negotiators can reach an accord on the terms, the actual agreements must then be sold to domestic nations: each country that is a party to the agreements must ratify them. A charm offensive has begun: in the UK, the T-TIP is touted by prime minister David Cameron as a “once-in-a-generation prize”. In the US, president Barack Obama repeatedly correlates the TPP with “American jobs”. And so the negotiations continue.