From "the Factory of Ideas" (Archive)
Dilek ÖRNEK, TÜSİAD External Relations Department
The EU and the US established in 2007 a government-to-government cooperation mechanism to develop a new economic partnership between the two parties. The need for such a cooperation has its roots in the rise of the emerging economies headed by China. However the acceleration of this process is essentially due to the 2008 crisis and the ensuing recession in the Euro area. The vision of partnership has acquired a particular momentum in 2011.
The impact of the Euro area crisis to the US, and hence practical demonstration of the interdependency of the two parties was the main reason of this process. Both in the EU and the US the need of a common search for a solution to the economic recession and the increasing unemployment was widely felt.
Main Motives of Establishing the TEC
Enterprises from the EU and the US have increased their trade and investment relations with the high growth rate developing countries. In particular, China, undeniably creates huge opportunities for the EU and US business with its population over 1.3 billion and growing economy. In fact, exports of the EU to China have increased 20 to 30 % per year for the last 15 years. China is also second greatest trade partner of US. However while China creates opportunities with its population and economic growth, it also raises itself to a very strong position in the global economic and politic arena, unthinkable for other emerging economies. Furthermore, as the economy of such a strong country is driven by the state, it can restrict raw material exports and complicate the access of the EU and the US to the raw material necessary for their manufacturing industries; it can close its public procurement market to foreigners; it can neglect enforcing regulations of the intellectual property rights; it can raise non-tariff barriers restricting access of foreign goods to the Chinese market. These and similar conditions weakens competitive power of the enterprises from the EU and the US. Moreover, in the markets of the third party countries Chinese goods replace good of EU and US origin, and China accesses more effectively to the raw material resources and public procurement markets of the third party countries. All these work against the commercial interests of the EU and the US.
Recently, countermeasures to the protectionist policies of China have been on the EU agenda. Among these countermeasures the principle of reciprocity in the public procurement procedures figures prominently. According to this principle, a company from a non-EU country interested in a public procurement tender may be excluded if the public procurement tenders of their country of origin are closed to the companies of the EU. Obviously the main motive of the reciprocity principle is its retaliatory nature against China where public procurement procedures exclude foreigners. EU displays also a distinct opposition in commercial matters by forging a raw material strategy against Chinese export restrictions on the trade of the raw materials, particularly of the rare earth metals, and by using complaint mechanism of the WTO.
EU has currently free trade agreements (FTAs) or partnership initiatives with ASEAN, India, Canada, the countries of the Gulf Cooperation Council, South Africa, other African countries, nearly every country but China. FTA between EU and S. Korea took effect in the year of 2011 and negotiations with Ukraine have also been completed. EU has even started preliminary talks with Japan with whom it refused to wrap up a FTA for a long time.
The US pursued a similar line of action. It concluded a FTA with S. Korea even before the EU and established the Trans-Pacific Partnership (TPP) with the Pacific countries excluding China.
The leaders from the nine Trans-Pacific Partnership countries, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore Vietnam and US declared the outlines of the Trans-Pacific Partnership on the November 12th, 2011.
Asian-Pacific markets are currently an important export destination for the US. Merchandise exports of the US to the Asian-Pacific region have reached to 775 billion dollar with a 25.5% yearly increase. This figure represents 61% of the total merchandise exports of the US. TPP countries as a group is the fourth largest export market of the US. US aim at boosting its growth and creating employment by increasing its trade and investment to the region. On the other hand it also strives to form a power group with the “others”, excluding China, the strongest regional power.
Furthermore, not only China, but also other emerging economies such as Brazil, Russia, and Argentina with their expanding protectionist practices and/or various issues of political disagreement drive EU and US to adopt a common outlook, as “they speak the same language”.
Western Values against the Emerging Economies
Following the inconclusive Doha Round, especially after the year of 2007, both the EU and the US have concentrated on the bilateral free trade agreements. In this way, they tried to oil the wheels of trade and investment.
However, with the TEC process the two parties initiated a cooperation process going deeper than any they did before, a kind of cooperation they did not enter with any country or country group previously: they started talks for defining and defending rules to bind the rest of the world as well.
Mr. Barroso, President of the European Commission made a speech this April, on this cooperation process, emphasizing “common values and common interests”. As Mr. Barroso’s emphasis suggests, not only clearing the way of trade and investments, but also harmonization of the standards and regulations, and information sharing is the backbone of this cooperation process.
Trends in the Investment and Trade Flows
In his April speech, Mr. Barroso expressed that the investment of the US to Belgium with a population of 10 million is greater than the investment of the US to China or India, and even the total amount of the investment of the US to Brazil, China and India is less than half of the investment of the US to Holland, and drew attention to the difference between the fact and the received idea.(i)
In this speech Mr. Barroso also reminded that the sum of the national incomes of the EU and the US is nearly the half of the total national income of the world, that almost one third of the world trade flows is between these two parties, and hence suggested something along the lines “we are still the greatest”.
However as the following tables demonstrate, while the EU and the US are still the greatest, the investment and trade trends are rapidly changing in favor of the developing countries, and particularly China.
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Main Issues Considered by the Transatlantic Economic Council and Planned Actions: • Secure Trade and Supply Chain Security: Preliminary work for the mutual recognition decision of the Customs-Trade Partnership against Terrorism (C-PAT) program of the US and Authorized Economic Operator (AEO) program of the EU is completed. With the signature of the Mutual Recognition Decision, reciprocal benefits to qualified holders AEOs and C-TPAT documents has begun as of July 2012. • Intellectual Property Rights: Cooperation for the protection of intellectual property rights in third party countries. • Investments: The parties will determine common principles for the international investment policy. These principles will constitute a reference frame for both the US and the EU in their investment policies in third party countries. • Cooperation for the SMEs: Cooperation for increasing investment and trade opportunities for the SMEs, and collaboration for the promotion of the SMEs in the Southern Mediterranean countries. • Raw Material: Transatlantic cooperation in the recycling, resource efficiency, research and development activities. • Innovation: Cooperation in bioeconomy and innovation activities for the bioproducts. • ENERGY STAR labeling: According to the reached agreement, Energy Star, a voluntary program for energy efficiency labeling implemented in the US, will be adopted by the EU. New areas and emerging industries considered for information sharing and of the defining the standards • E-Health: Collaborative works for the electronic health records. • Information and Communication Technology • Cloud computing • Nanotechnology • Electric vehicles: the harmonization of the standards and regulations, joint research initiatives and pilot projects about the electric vehicles are envisaged. A letter of intent has been signed by the two parties and a work plan has been launched Main Challenges • The EU expects to obtain a derogation from the “Buy American” practice (to be considered as American goods) to get a share of the public procurement market of the US, and win more tenders at the state level. However, US refuse to discuss the issue of the public procurement at the state level. • About the services market, the goals of the EU are both greater market access opportunities and cooperation for regulatory framework. However, as the EU services sector regulations are more stringent, US do not lean towards a collaborative work in this subject. • While the elimination of the tariffs for the manufactured and agricultural goods is the declared goal, De Gucht’s speech mentioning efforts to come as close as possible to a full tariff liberalization, signals that a full tariff liberalization cannot be achieved straight away. • The most problematic area is the non-tariff barriers in agriculture and meat trade. While the tariff rates are not high, the EU had set up non-tariff barrier restricting or prohibiting veal, poultry, soybean, pork and rice import from the US. The EU wants to establish of a joint platform to deal with the relevant regulations. All these are challenging issues, which remained for years without a solution satisfying both parties. However at this stage of the Transatlantic economic partnership process, there is a strong anticipation for a compromise involving concession from both parties. For instance it is probable that the EU shows more flexibility in the health and phytosanitary issues, while the US opens up its public procurement market at the state level. |
Current Situation of the Transatlantic Economic Partnership Process and Turkey
During the EU-US Summit meeting on the November 28th, 2011, chaired by Mr. Barack Obama, President of the US, Mr. Barroso, President of the European Commission and Mr. Van Rompuy, President of the European Council, decision was taken to establish a working group on the “Jobs and Growth”. The High Level Working Group on Jobs and Growth will examine the issues and will report its recommendations and conclusions to the leaders of the US and the EU by the end of 2012
The Transatlantic Economic Partnership process has already included important decisions on defining standards in the emerging industries, has secured the support of the business world and it advances rapidly. Turkey cannot then remain oblivious to this process. EU business community relates the fact that on the other side of the Atlantic the issue has gathered support from both the Republicans and the Democrats as never before, and a very important momentum is acquired.(iv) The negotiations are expected to begin by early 2013 and to be concluded in 2.5 or 3 years.
As the EU focused its energy on the free trade agreements with the third party countries, Turkey complained about being excluded from these agreements while being a member of the EU Customs Union, criticized EU of not putting enough pressure on the third party countries to sign similar agreements with Turkey as well, and expressed its discontent at every relevant platform. Turkey frequently voiced its qualms, especially during the negotiation with S. Korea, Ukraine and India.
Now an even greater body is being created while Turkey is a member of the EU Customs Union but still not of the EU. The questions are how Turkey can take part in this process between the EU and the US, what would happen if it can take part and what would happen if not.
As it should be in conformity with the EU practice, Turkish customs regulations have to be remodeled. The impact of being excluded from or taking part in this new body which will define the rules and the principles about the standards in the emerging industries, investments and other regulations, should be evaluated carefully
When Turkey attempted to sign an FTA with a country which signed an FTA with the EU the main problem was always the country in question declining to sign under the pretext that Turkey is not an EU member. The EU was using the same pretext for not pressuring the third country hard enough in favor of Turkey. However, the third party is now the US which always supported EU membership of Turkey. Thus, the unfolding of the events may be different than the earlier FTA ventures of Turkey. But even in these different circumstances the support of the EU will still be essential.
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(i) “A EU-US partnership for growth and jobs”, Jose Manuel Barroso, AECA Brussels, 26 April 2012
(ii) World Bank Databank
(iii) http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries-and-regions/
(iv) BUSINESSEUROPE (The Confederation of European Business) Notes from the meeting of the USA Network
"TÜSİAD Article Series"comprised of articles on current debates. The articles are prepared by TÜSİAD researchers. Opinions expressed belong solely to the author and do not represent the views of TÜSİAD."