By: Ann Bruno
VP of International Operations (BWI)
ICAT Logistics, Inc.
During the first, second and third rounds of the trade and investment talks that took place in July, November and December 2013, respectively, negotiating groups set out respective approaches and ambitions in some 20 areas that would be affected by the Transatlantic Trade and Investment Partnership (TTIP). These rounds will be followed by a fourth that will be held in Brussels in March in hope of signing the new trade agreement between the United States and the 27-nation European Union.
According to Assistant U.S. Trade Representative Dan Mullaney, who is serving as the chief U.S. negotiator, and EU Chief Negotiator Ignacio Garcia Bercero, negotiators made progress on the three core parts of the proposed trade agreement which will be the focus for the next round of talks — market access, regulatory aspects and rules.
With $1 trillion in trade taking place between the United States and European Union, the potential impact of a new transatlantic trade pact is huge. In a March 2013 op-ed piece published by Bloomberg, Sen. Bob Corker, R-Tenn., put this trading partnership into perspective, stating “The U.S. and the 27 nations of the (EU) form the world’s largest trading area. Our combined population of 800 million generates almost half of the world’s gross domestic product. As the world’s two biggest markets, the U.S. and Europe account for more than 40 percent of world trade.”
According to the Directorate-General for Trade at the European Commission, TTIP has the potential to add around 0.5 percent to the European Union’s annual economic output. In his remarks at the G-8 summit, British Prime Minister David Cameron said the pact could add “80 billion pounds” (more than $125 billion) to the U.S. economy.
The European Union is a customs territory in which there are no tariffs or duties — no borders in the free trade sense. Historically, the United States and European Union have worked to reduce customs duties; transatlantic tariffs currently average only 3 percent. So tariffs or customs duties will not be sticking points in the upcoming TTIP negotiations. What will be crucial are non-tariff barriers intended to protect domestic businesses and further trade policies of individual nations. Even though duties have come down, each trading bloc maintains a wide range of non-tariff barriers. For example, auto emissions and mileage requirements set by the U.S. Environmental Protection Agency are more stringent than those of European nations. These requirements add to the cost of cars manufactured in Europe. At the same time, the United States gives subsidies to aircraft manufacturer Boeing to make it more competitive globally; EU nations do the same for Airbus.
Food additives are another example of a non-tariff barrier that restricts the flow of goods. The European Union does not allow importation of foods produced from genetically modified organisms (GMOs). This is a huge stumbling block for U.S. agriculture producers.
But perhaps the most notorious non-tariff barrier is the “cultural exception” maintained by France in supporting and protecting the French movie and television industries from Hollywood. Citing this cultural exception, France requires a certain percentage of imported media to be in French. Nicole Bricq, French foreign trade minister, has said her country’s protectionist stance regarding the media business is not open to negotiation in the TTIP talks, prompting EC President Jose Manuel Barroso to call the French stance “reactionary.”
Assuming the TTIP negotiations do lead to an agreement, what’s the expected impact on the logistics industry? In a narrow sense, a new transatlantic trade pact is only about the volume and cost of trade. A new agreement would have the greatest impact on producers in the United States and European Union who want to sell goods overseas.
If the TTIP talks succeed in eliminating remaining customs duties, projections are that the gross domestic product (GDP) of the EU countries will increase by 0.4 percent and the U.S. GDP will increase by 1 percent. But the biggest transatlantic trade bonanza lies in reduction of non-tariff barriers. If TTIP negotiators succeed in eliminating only half of the non-tariff barriers, the GDPs of both the United States and European Union will increase by 3 percent.
Ultimately, TTIP is all about job growth for EU countries. This is because the GDP growth rate in the European Union was down 0.3 percent in 2012 and is projected to decline another 0.1 percent in 2013. In his remarks at the June G-8 summit announcing the start of TTIP negotiations, Cameron said the new agreement would create “2 million jobs” on both sides of the Atlantic. In my opinion, job creation is the only reason the European Union is now ready to come to the table.
For the logistics industry, TTIP means more shipments back and forth across the Atlantic. More air and ocean shipments would lead to more deliveries and an increase in the number of customs entries. Theoretically, shipping more and clearing more is good for companies like mine.
But this won’t happen immediately and, fortunately, railroads, shipping lines, air freight companies and ports will have plenty of time to prepare for the coming “TTIP-ing” point in transatlantic trade.