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October 15, 2013

TPP, TTIP and Getting America's Competitiveness Back on Track
Posted by Bill R. French

By Marcela Heywood

TPPLast week’s Asia-Pacific Economic Cooperation summit in Bali, Indonesia marked further progress for the Trans-Pacific Partnership (TPP) and set an ambitious goal to finish negotiations by the end of the year. Although the U.S. government shutdown – and President Obama’s absence in Bali – did not hinder the trade talks, it did call America’s credibility into question. Government shutdown could threaten both TPP and Transatlantic Trade and Investment Partnership (TTIP) negotiations by displaying uncertainty in U.S. economic and foreign policy priorities. Congress needs to reach an agreement and prioritize TPP and TTIP, as they are necessary policy initiatives to boost American competitiveness, stimulate the economy, and exert soft power to create and solidify American norms overseas.

21st century foreign policy must recognize the increasingly economic nature of competitiveness. Globalization has created an environment where “economic concerns typically -- but not always -- outweigh traditional military imperatives.” Over the last 10 years, world powers, like China and other recent leaders, have established power on economic rather than military capabilities, showing the importance of a dynamic economy. U.S. competitiveness depends on our ability to lead with the economy at the center of our geopolitical strategy while maintaining military strength.

American competitiveness has declined over the past decade, threatening the economy as well as our national security. The international power structure is shifting as economic growth has surged in developing countries. Since 2008, American economic competitiveness has fallen from its historically consistent 1st place ranking to a 7th place ranking for 2012-2013. In addition, decreasing FDI inflows to the U.S. mark falling competitiveness, because FDI flows primarily go to multinational companies, which often fuel innovation.

It would be a mistake to consider this trend in isolation from national security. Declining competitiveness undercuts America’s credibility by threatening the economic foundation of American power, and over the long-term may undermine U.S. military capabilities as the margin of American technological leadership decreases.

Historically, U.S. trade policy has supported U.S. economic competitiveness through a long-term attempt to liberalize global trade in which decreased barriers to markets and increased investment flows benefits the innovative and productive advantages of American enterprise.  The WTO’s Doha round would be a capstone to this trade agenda, but its failure leaves a gap in America’s trade strategy. It is this gap that can – and should – be filled by TPP and TTIP. These deals offer an advantage unique to the United States by placing the U.S. at the center of two distinct agreements, establishing free trade and encouraging investment across both the Atlantic and Pacific. While TPP and TTIP do not offer the same benefits as Doha, the agreements are a contemporary strategy for the U.S. to regain competitiveness in light of the WTO stalemate.

TPP and TTIP would lead to domestic employment and business growth, providing a budget-neutral stimulus to the economy. The Asia-Pacific region accounts for about 40 percent of global trade and over 60 percent of U.S. trade, while trade between the U.S. and EU accounts for nearly half of global economic output.  Together, TPP and TTIP would include thirty-nine countries that account for over 60 percent of world trade. Liberalizing this quantity of trade is significant because the association between employment growth and import growth is positive. Further, increased exports through improved market access leads to profits for business.

According to the Centre for Economic Policy Research in London, an ambitious deal that eliminates U.S.-EU tariffs and cuts non-tariff barriers by 25% would boost American GDP by 0.8%; using the conservative conversion that a 1% increase in GDP corresponds to an additional 1 million jobs, passing an ambitious TTIP agreement could create up to 800,000 new jobs alone. In addition TPP and TTIP will better equip the U.S. to compete in the global marketplace through easier expansion into foreign markets, easier accessibility to American products from abroad, and innovation from increased competition.

TPP and TTIP also offer security benefits by creating economic partnerships that can strengthen diplomatic relationships and shape the international system in favor of American interests. For example, TPP led to a meeting between President Obama and Vietnamese President Truong Tan Sang this summer – only the second meeting between the U.S. and Vietnam since relations resumed in 1995 – marking a “’steady progression and strengthening of the relationship’…to pursue deeper cooperation in a range of areas, including trade, commerce, security and other issues.” TTIP creates the economic base to allow the U.S. and EU to address global challenges and “shape a open rules-based role” in the world. In addition, the two agreements will lead to economic prosperity in member nations, contributing to social stability by increased employment rates, providing more resources for social safety nets, and less incentive for corruption in government. Such social factors in other countries are critical for American security, creating a more predictable global environment.

Further, TPP and TTIP offer an opportunity to apply soft power by allowing the U.S. to influence standards and establish norms in the Asia-Pacific, while simultaneously deepening shared norms between the U.S. and EU. This use of soft power is critical for long-term goals, because establishing and deepening norms is essential for global market consistency.  For example, IP laws are necessary to protect the ideas of entrepreneurs so that people will be encouraged to innovate and know they’ll receive credit for their thinking; cybersecurity provisions in TPP and TTIP are important to prevent economic espionage that unfairly undermines businesses, which will lead to trust in multilateral endeavors; and an e-commerce framework will enhance the viability of a digital economy, modernizing and standardizing traditional commercial trade practices across the Atlantic and Pacific.  Collectively, such provisions will create a benchmark that can be used as a stepping-stone to further multilateral agreements, perhaps even reviving the hope of a comprehensive global trade framework in the far future.

Moreover, Benefits of the TPP could entice non-members, like China, to consider adopting higher standards in order to participate. Although there is concern that TPP intentionally excludes China, its entry is possible given TPP’s accession mechanism; whether China joins will depend on the preparedness of its domestic economy for high-standard regulations. Currently, chances of Chinese accession are slim because of absent standards across multiple sectors including the aforementioned examples of IP, cybersecurity, and e-commerce – a lack of Chinese IP law and cybersecurity measures threatens business security, and booming e-commerce calls for the examination of consumer protection, authenticity, and customs regulations in the digital sphere. 

The future of TTP and TTIP remains to be seen, and their successful negotiations and ratifications by member states is far from certain. Nonetheless, they must be viewed as the contemporary solution to international trade and provide a serious strategic alternative to the WTO stalemate, struggling American competitiveness and a sluggish domestic economy in the face of considerable uncertainty regarding the structure of the international system in the 21st century.

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