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How's that T-TIP Thing Workin' for Ya?

The T-TIP Negotiators’ Challenge: “How’s that T-TIP Thing Workin’ for Ya?”
by Kathryn Hauser
October 28, 2014
The well-known American TV talk show host Dr. Phil McGraw has a line he often uses with guests to snap them out of delusional thinking and back to reality: “So, how’s that workin’ for ya?”  This is the question we need to put to American and European negotiators who have now completed seven rounds of negotiations on the Transatlantic Trade and Investment Partnership (T-TIP) and have precious little to show for their effort.
“Time Out” Needed.  Both sides should spend the next few months recalibrating the whole approach towards the T-TIP.  This undertaking should be conducted as a joint problem-solving exercise between the world’s two largest trading partners to stimulate growth and create jobs – a partnership not a negotiation.  The experience over the last 18 months has clearly demonstrated that the structure of reciprocal trade negotiations designed for the post-WWII period is not appropriate for today’s highly integrated knowledge-based transatlantic market.  Returning to the negotiating table with the same old script will not produce a different outcome.  As Dr. Phil would say, “It’s just not workin’! Stop fighting the old battles and figure out how to move forward.”
Our negotiators on both sides of the pond would benefit from a period of reflection about today’s transatlantic market and what the U.S. and EU want it to become in the future.  It would behoove both governments to incorporate the views Dr. Robert Atkinson, President of the Information Technology Industry Foundation, laid out in his new book, Understanding and Maximizing America’s Evolutionary Economy[1].  While Atkinson describes forces at work in the American economy, his points are equally valid for the EU and the broad transatlantic economy.  He argues that conventional economic frameworks fail to provide policymakers with the guidance needed to drive an advanced, globalized 21st century economy.  He suggests we embrace “evolutionary economics” and not focus on buggy whips or appeasing the calls for “free markets” from the right or “fair markets” from the left.  We have to move the transatlantic economy forward on all fronts to stimulate growth and job-creation.  Hence, an evolutionary economics-inspired economic and trade policy should be at the heart of T-TIP.
In addition, the American and European trade negotiators should take a fresh look at seven fundamental elements of our transatlantic relationship and examine what today’s situation portends for the competitiveness of the transatlantic market in the mid- and long-term.  Only then should the negotiators design a joint problem-solving initiative that will place the U.S.-EU relationship on a strong footing for the economic realities of 2020 and beyond.
Seven elements worth reconsidering are:
1.     Economic Growth.  The recent annual meeting of the IMF-World Bank produced detailed economic data showing that the U.S. economy is rebounding from the Great Recession but Europe is stuck.  Negotiators need to think through how collective action now can enhance growth prospects in 2020, 2025 and beyond.  The approach of categorically taking entire sectors or issue areas off the table, such as audio-visual restrictions or financial services regulation, is not going to result in the economic evolution, stimulation, innovation, and modernization that drive economic growth.    
2.     Employment.  While much focus has been given to reducing the unemployment rate in the U.S. and across the 28 Member States of the European Union, an equally important element is the kind of employment that people, especially young people, will find.  Our knowledge economy demands ever-higher skills and technology training across all sectors, and we must find a new way to manage the push-pull of matching economic expansion with skilled employees.  Our long-term competitiveness depends on integrating these issues into the joint problem-solving effort of T-TIP.  This cannot be your father’s trade negotiation that did not take into account labor mobility or skills training.
3.     Innovation Indicators.  It is imperative that the U.S. and EU look out over the horizon 10-15 years and use the opportunity of T-TIP to strengthen the transatlantic market as the most desirable location globally where cutting edge innovation takes place.  Whether the issue is protection of intellectual property, ease of filing for patents, or public-private partnerships for basic R&D that allow both American and European companies to participate, the T-TIP effort must bear in mind the deep integration of our economies that spurs global innovation across all sectors.
4.     Supply Chain Dynamics.  The traditional trade negotiating structure of reciprocal tariff reductions does not fit in a world of complex supply chains.  Today’s transatlantic market is characterized by the shipment of raw materials and components among many countries for specific value-added production, with an overlay of multiple services and investments. American and European negotiators must think beyond their own borders and jointly develop a strategy that will enable more specialized production, more specialized services, and greater innovation all along the value chain and across the transatlantic market.
5.     Investment.   As Dan Hamilton and Joe Quinlan underscore so clearly in their annual economic report on the Transatlantic Economy[2], transatlantic investment dwarfs transatlantic trade in economic impact and strategic importance.  American companies invest heavily in Europe just as European companies invest heavily in the United States.  Companies headquartered in EU member states have invested $1.6 trillion in the United States and directly employ more than 3.5 million Americans.  Similarly, U.S. firms have invested $2.1 trillion in the EU – a sum representing more than half of all U.S. investment abroad (and it’s 40 times as much as U.S. companies have invested in China).  Sales by the invested companies – not trade across the Atlantic – are the dominant way American firms deliver goods and services to European consumers, and European firms deliver goods and services to American consumers.  Historically, this wasn’t the case and investment issues have not be part of previous trade negotiations.  Now is the time for the U.S. Government and the European Commission to jointly focus on ways to capitalize on the historic invested capital base, enhance investment flows, and better understand the job creation dimensions of this activity.  Indeed, this close integration of investment is what sets the transatlantic economic relationship apart from all others.
6.     Trade.  Our trade relationship has changed with the times. The United States and Europe exchange more than $2 billion of goods and services a day across the Atlantic. The enormous volume of transatlantic commerce is so large that eliminating today’s relatively modest trade barriers will free up a huge amount of capital that can be put to more productive use by companies to expand trade and investment, innovate and create jobs.  This is particularly true for small and medium-sized companies that, as a group, are the largest employers in the U.S. and EU but are under performing in trade.  Additional steps to intensify regulatory cooperation and make doing business easier should be pursued.
7.     The World Has Really Changed.   Finally, the world has changed and continues to change.  Europe and the United States no longer dominate the world economy.  Global growth is substantially driven in the emerging markets.  Competition is intense, relentless and global.  Product cycles are compressed.  Brand loyalty cannot be taken for granted.  The world economy and global business of the 2010s and 2020s is not bound by the regimes or rules of bilateral Free Trade Agreements negotiated in the 1980s. 
Trade negotiators, the business community, NGOs and other stakeholders all seem frustrated by the slow progress to date in the T-TIP negotiations.  Dr. Phil would say, “what we’ve been doin’, just ain’t workin’ anymore. That’s the definition of insanity – keepin’ doin’ the same thing and expectin’ different results.”  The U.S. and EU need a total reset of T-TIP.  We cannot expect a different outcome unless we have a more complete understanding that the transatlantic market of 2014-2015 is a constantly evolving complex ecosystem that is both different and larger than the transatlantic market of yesteryear.   Our negotiators need to set aside the stale debates of a previous era, stop declaring high profile red lines, and focus on creating a renewed transatlantic partnership for global economic leadership to match tomorrow’s economic realities.

[1] Atkinson, Robert D., “Understanding and Maximizing America’s Evolutionary Economy,” The Information Technology Industry Council, October 2014. [2] Hamilton, Daniel S. and Quinlan, Joseph P., “The Transatlantic Economy 2013: Annual Survey of Jobs, Trade and Investment between the United States and Europe”, Center for Transatlantic Relations, The Paul H. Nitze School of Advanced International Studies, The Johns Hopkins University, Washington, DC  

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