[co-author: Gabriella Paglieri - Law Clerk]

The United States and the European Union (EU) together represent 60 percent of global GDP, 33 percent of world trade in goods and 42 percent of world trade in services. Direct investment in each other’s economies totals more than $3.7 trillion. However, due to certain regulatory, technical, and other barriers, the relationship has not reached its full potential. As a result, the United States and EU have initiated negotiations for a free trade agreement between them called the Transatlantic Trade and Investment Partnership (TTIP), which would expand bilateral trade and investment and reduce trade and non-trade barriers and costs between the United States and the EU by: (1) increasing market access, (2) enhancing regulatory cooperation, and (3) developing global rules in emerging trade areas.

Increasing Market Access

Tariffs: While the average U.S. and EU tariffs are already relatively low with a tariff rate of approximately 3.5 percent ad valorem for the United States and about 5.5 percent for the EU, higher tariffs are imposed on certain import-sensitive categories, such as food and agriculture sectors. The negotiators of TTIP are seeking to further reduce or eliminate tariffs which could yield significant economic gains.

Services: A key objective is to open service markets in new sectors, such as the transport sector, so that service providers are free to select the most convenient and cost-effective mode for delivery of their service, whether online, by allowing direct access to a foreign customers in the home market; via physical presence in the home market; or through a temporary employee present in the foreign markets.

Investment: The aim is to achieve the highest levels of liberalization and investment protection possible. The United States has successfully negotiated eight bilateral investment treaties (BITs) with certain EU member states, all of which set high standards of investor protections and guarantees for a fair process in investor-state dispute resolutions.

Procurement: The goal is to open government procurement markets to large businesses and small and medium enterprises (SMEs) on both sides. The United States and the EU seek to build on their existing procurement commitments to each other under the World Trade Organization agreement on procurement and to expand this commitment at all levels of government.

Regulatory Cooperation

The highest potential economic benefit lies in TTIP negotiations in the regulatory area. Key sectors of interest include automobiles, chemicals, cosmetics, information communication technologies, medical devices, pesticides, and pharmaceuticals. Currently, the most significant barriers to transatlantic trade are the obstacles created by non-tariff barriers (NTBs) which are applied at borders, such as restrictive licensing, permitting, and other customs requirements as well as barriers applied behind borders, such as unnecessary technical regulations and additional safety, health, and environmental measures. SMEs in both countries would stand to benefit by TTIP due to the reduced costs of complying
with unnecessary and duplicative trade regulations and the adoption of commonly accepted standards.

Global Rules

Given the size and influence of the transatlantic partnership, negotiators of TTIP wish to cover a wide range of trade-related issues aimed at using the completed agreement as a model for shaping a global rules-based trading system. The objective is that, when applied globally, the commitments under TTIP will advance trade liberalization, set rules and standards, and address challenges with emerging markets.

Impact

If successfully concluded, TTIP would be the most significant bilateral free trade agreement to date, covering approximately 50 percent of global output, 30 percent of world merchandise trade, and 20 percent of global foreign direct investment. Studies predict that, once fully implemented and the economies fully adjust, TTIP could boost overall trade between the two respective blocs by as much as 50 percent and result in an initial increase of up to €95 billion in the U.S. economy and €120 billion in the EU economy. The gains may be much higher since they are predicted to continuously increase over time.

Furthermore, TTIP would not only increase bilateral exports between the United States and EU, but would also increase the parties’ exports to the rest of the world resulting in a rise of 8 percent in total U.S. exports and 6 percent in EU exports. According to the European Trade Commission, this would mean an additional €240 billion and €220 billion worth of sales of goods and services for U.S.- and EU-based producers, respectively, thereby creating significant growth in U.S. and EU jobs, wages, and other household income.

Status and Outlook

The United States and the EU began negotiations in July 2013 and have held 10 rounds of negotiations so far. The tenth round ended on July 17, 2015 and U.S. and EU regulatory cooperation has already led to some concrete results. For example, the EU and the United States have introduced compatible regulations leading to a single development program for biosimilar medicines. This is especially important to the generic medicine industry. In particular, biosimilar medicines approved in the EU can be considered as a reference for the U.S. approval process, and vice-versa. This will avoid duplication and reduce costs, possibly leading to greater availability of cheaper biosimilar medicines for patients.

In June 2015, the United States adopted the Trade Promotion Authority Bill, which provides additional political impetus and support to trade negotiators. The adoption of TTIP would require the approval of 28 governments in the EU, and then, European Parliament approval; and in the United States, the approval of both houses of Congress. Trade negotiators hope to have a TTIP agreement in place by the end of 2016.