Postcard from London — Transatlantic Trade and Developing Countries

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The Transatlantic Trade and Investment Partnership (TTIP) being negotiated now between the United States and the European Union is known as “the biggest trade deal in the world.” It’s designed to lower trade barriers and smooth regulations between the two economies. Of course, its effects will extend far beyond US and EU boundaries; developing countries, while not party to the negotiations, stand to gain or lose a lot from it. Three areas of potential concern come to mind:

1. Diversion of trade from developing-country exporters
2. Regulatory cooperation initiatives with rules of origin that exclude developing countries and make it relatively harder for them to meet US or EU standards
3. Further erosion of support for the World Trade Organization and the multilateral, rules-based trade system

Owen Barder and I have been discussing the development implications of TTIP and hope to launch a conversation now so that developing-country interests are not ignored completely as the negotiations move forward. We took the first step in initiating this dialogue when I was in London last week and Owen hosted a small roundtable of development experts from the UK and Europe more broadly at the offices of CGD in Europe.

I kicked off the discussion by noting my concerns about how TTIP could harm developing-country interests. Analyses prepared for the European Commission and the UK Department for International Development (DfID) suggest that trade diversion is likely not a serious risk, especially for poorer countries because they rarely export the same types of goods as industrialized countries. However, the DfID-commissioned paper notes that the risk of trade diversion is somewhat higher in the US market than in the EU, and that providing duty-free, quota-free market access for least developed countries (LDCs) could provide some compensation to affected countries (mainly Bangladesh and Cambodia). Roundtable participants generally agreed with that analysis and focused greater attention on regulatory cooperation mechanisms and rules of origin that could make it harder for poorer countries to access US and EU markets.

Regulatory cooperation could make trade more difficult for developing countries with limited capacity. One option is regulatory harmonization between the United States and European Union, which could result in product standards that are higher and more costly to meet for other players. Alternatively, the two partners might agree to recognize one another’s standards and compliance systems as equivalent. That could significantly lower costs for developing countries if exports deemed to be in compliance with either US or EU standards are also recognized as in compliance in the other market. A mutual recognition agreement that applies only to products from the US or EU markets, however, would put third-country exporters at an additional disadvantage.

While concerns about the impact of a TTIP agreement on multilateralism did not rise to the forefront of the roundtable conversation, one participant noted the importance of including an open accession clause, leaving the door open for participation from any country willing to accept the obligations of the agreement. Another roundtable participant pointed to issues, such as intellectual property rights, where US and EU bilateral agreement on stricter rules would increase pressure for developing countries to accept higher standards in future negotiations, even in cases where those standards may not be appropriate.

One aim of the roundtable was to identify a short list of key items that the development community believes would make for a development-friendly TTIP. Among the items discussed were the following:

• Duty-free, quota-free LDC access to the US market to mitigate the impact of trade diversion
• Rules of origin that encourage inclusion of developing countries in global supply chains
• Regulatory cooperation mechanisms that lower rather than raise compliance costs for developing countries (if that is too difficult, the US and EU should increase aid and technical assistance for capacity building)
• A commitment to open regionalism

Owen and I hope this is just the start of a dialogue on these issues and we’d like to hear what you think the key opportunities and challenges are.

P.S. From London, I went on to a conference in Dhaka, Bangladesh, sponsored by the Centre for Policy Dialogue. The aim of that conference was to identify key issues for LDCs at the upcoming WTO ministerial in Bali. (I’ll have more to say about that part of the trip in a second post.) For now, the signs from Geneva seem to be pointing to an even smaller package in Bali than earlier hoped, with very little attention to LDC issues. One disturbing takeaway from both meetings was that there are enormous challenges ahead for the multilateral trading system.