Finance and Economy

The EU-US Free Trade Agreement: Bad Prospects for the Global South

In July, negotiations for a Transatlantic Trade and Investment Partnership (TTIP) between the European Union and the United States of America began. This development, however, has been accompanied by protest and critique on a number of levels. One issue which has barely been discussed, for example, is the impact this agreement will have on the Global South. This region is not a homogeneous bloc, but consists, rather, of a range of extremely diverse states which will certainly be negatively affected by any potential US-EU trade agreement. Such effects will result primarily from the diversion of trade flows, but also from, for example, the bilateral setting of global standards.

Measuring the impact on the South

It is important to note that a new free trade agreement will not just produce growth and jobs out of the blue. Furthermore, if the growth and jobs materialise at all, it will be the result of the diversion of trade flows which will occur as the level of trade between the EU and the US increases at the expense of trade relations with other countries. Countries for whom, say, the US represents a main trading partner will be forced to enter into competition with the EU when the TTIP comes into force—or the other way around. Additionally, countries that benefit from low tariffs due to the General System of Preferences (GSP) will face further negative consequences: if tariffs or regulations between the US and the EU are changed so as to deepen their trade relations, certain GSP countries will see their exports to those two partners drop.

It is Mexico’s economy that will suffer most from the TTIP, as it maintains very close trade relations with both the EU and the US. They represent its largest two trading partners while Mexico itself is the third largest export partner of the US and the 18th of the EU. With the TTIP the Mexican garment industry, for example, could face increased competition from Europe. Even though Mexico’s garment exports to the US fell after China joined the WTO in 2001, it regained strength due to its greater diversity and an increased focus on high-quality clothing. Meanwhile, the EU, particularly Italy, exports more and more to the US which itself produces very little in the way of clothing. Hence, the garment industries of both the EU and Mexico are already in competition for access to the US market and, if T-TIP favours European products by lowering tariffs, this would negatively affect Mexico’s garment industry.

Another example is the trade in citrus fruits. In the EU, they are mainly imported from South Africa, Egypt and Morocco. So far, the US’s biggest export markets are Canada, Japan and the Netherlands. A trade deal could see US citrus fruit exports to the EU rise, forcing South Africa, Egypt and Morocco to look for new markets. However, deep, qualitative analysis of the changes in international trade flows which the T-TIP could induce has thus far proved lacking.

Despite this lack of analysis, it is obvious that global trade flows are pertinent to any potential agreement. In this regard, EU-US trade relations seem less important in comparison to those the EU already has with China and Russia, as the EU’s external trade with the US halved from 1990 (22.3%) to 2012 (11.5%) whilst trade with China grew tremendously—in 1999, the EU’s share of exports to China was 3%, growing to 8.5% by 2012. Imports from China constituted 7.1% of total EU imports in 1999 and 16.2% by 2012. Trade with Russia follows a similar trend.

Propping up old powers

A potential deal between the US and the EU is therefore not just about trade, as evidenced by the fact that investment-related industrial goods are the main goods traded between the US and the EU – for which there are already low tariffs.

The actual reason why the EU and the USA are negotiating this agreement is to bolster their diminishing economic position in world politics by setting global standards. They aim to develop a new trade regime which will force its regulations and standards on other countries. This was the case with the North Atlantic Free Trade Agreement (NAFTA), which still serves as an exemplar for all free trade agreements (FTAs) negotiated by the US since NAFTA’s implementation in 1994. Likewise, the T-TIP will also serve as a template for all future FTAs that will be negotiated between the US, the EU and third countries, thus allowing the EU and the US to make others accept their bilaterally-agreed trade regulations.

Sidelining BRICS?

Another scenario is that the US and the EU together with their main trading partners establish a common free trade zone in the long term. Australia, Canada, Chile, Colombia, Korea, Malaysia, Mexico, Peru, Singapore and Vietnam are all either negotiating partners or probable future members of the Transpacific Partnership (TPP) which the US is currently negotiating. A common TPP-TTIP trade zone would leave out the BRICS countries (Brazil, Russia, India, China and South Africa), a move which the US and EU would no doubt hope would spark their desire to join.  If they indeed so wished, they would then need to accept the existing trade conditions, instead of negotiating them multilaterally.

Similar tendencies can be seen in the negotiations for a new trade in services agreement (TiSA) which, in the face of the stagnation of the Doha round, are being negotiated plurilaterally. The BRICS do not want to be part of the deal so long as the US and the EU do not revise their agricultural policies; at the same time, however, it is the in BRICS countries themselves that trade in services is gaining importance. The whole undertaking, therefore, will likely prove unfruitful, should the BRICS be left out.

As we have seen, then, current bilateral or plurilateral negotiations for agreements with the goal of global standard setting do not take into account the effects on major trading partners. Forcing them to accept the conditions of powerful states reinforces structural injustices in the world market and strengthens the old paradigm of the powerful few dictating the state of global trade conditions to others. However, with the growing power of the BRICS, it is unlikely that they will just accept the TTIP conditions—rather, the TTIP will, ultimately, provoke the formation of new blocs which mirror each others’ strategies.

The death of the Multilateral Trading System

Such a situation would contradict the ideals the EU and the US envisaged when the multilateral trading system was created in the aftermath of the Second World War. One of the goals of such common trade regulations was to establish peace through less discriminating and more integrated trade relations on a global level.

Accordingly, neither bilateral nor plurilateral negotiations should be a way of setting global standards or pushing multilateral negotiations. Better would be fair multilateral and transparent negotiations that involve civil societies from all over the world. With the TTIP, the US and the EU are not only excluding states that will be adversely affected by the agreement in and of itself, they are also negotiating in a way that is fundamentally non-transparent and that excludes the public. This is why we Greens, along with other engaged groups and individuals, are making our voices heard, with the hope that the TTIP does not manage to bypass multilateralism and destroy the prospects of the workers and people of the countries of the Global South.

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