The trans-Atlantic scramble for free trade deals

US President Barack Obama in his State of the Union speech used tough words to press for the completion of the US-led Trans-Pacific Partnership (TPP) agreement without China – and if necessary, by currency friction.

What’s the common denominator between the accelerated efforts to have the TTIP accepted in Brussels, the opposition to the deal, and President Obama’s hurry?

Well, as opposition against the US-EU deal is building in Europe, Brussels is growing anxious while President Obama needs a legacy deal.

Headwinds against US-EU TTIP

President Obama initiated the TTIP talks in early 2013. Brussels politicians at the time seized on the opportunity.

And yet the US-EU talks began only two years after President Obama’s key visit to Asia and talks for the trans-Pacific deal.

In addition, today’s new EU leaders are less certain and more divided about their objectives, while the Democratic White House is constrained by the Republican-controlled Congress.

As the US-EU talks have dragged out longer than anticipated, transatlantic goals are facing head winds across Europe as governments struggle with critics to further free trade, which is opposed by radical left and right, eurosceptics and part of the mainstream consensus.

The advocates of the proposed US-EU agreement argue that the economic gains of the partnership exceed the political headaches of the process.

The European Commission says that the TTIP would boost the EU's economy by €120 billion, the US by €90 billion and the rest of the world by €100 billion.

Brussels is pushing for a quick deal because it does not want to be left out in the cold as larger regional trade blocs are emerging. Europeanists in Brussels believe a US-EU deal is needed to balance Washington’s turn towards Asia.

Friction over US-Asia TPP

Historically, the Trans-Pacific Partnership (TPP) originates from a 2005 free trade agreement among Brunei, Chile, New Zealand and Singapore.

Since 2010, Washington has led to talks for a significantly expanded FTA, which is to be a “high-standard, broad-based regional pact” and which reflects US alliances in Asia and Latin America – but excludes China.

It leaves a strong sense of déjà vu.

In the early 1990s, the proposed Free Trade Agreement of the Americas (FTAA) failed to open South America to free trade, but effectively split the region. Today, the TPP, in its current form, has the potential to polarise Asia into two blocs.

In the mid-1990s, APEC leaders opted for free trade and investment. In 2006, C. Fred Bergsten, then chief of an influential US think-tank, made a forceful statement in favour of the Free Trade Area of the Asia Pacific (FTAAP), arguing it would represent the largest single liberalisation in history.

The Obama Administration then set the FTAAP aside and has been focused on the trans-Pacific deal for which Michael Froman, the US Trade Representative, is seeking congressional support.

China’s view, on the other hand, is that the FTAAP, which includes both the US and China, would better serve as a foundation for other regional talks.

Behind the facade, Washington and Beijing are also exploring possible compromises.

Negative scenarios

Initially, the TTIP’s objective was to unleash the full potential of the transatlantic economy. Even more compelling than the benefits of achieving an agreement are the potentially devastating consequences of failure.

Failure, say Europeanists in Brussels, could alienate the US engagement from the continent while if a trans-Pacific deal moves ahead instead, the global balance will tip in Asia’s favour.

The argument sounds compelling, but it is predicated on a win-lose world: If Asia wins, Europe loses.

The cause of Europe’s decline is not linked to success in Asia, but failure to implement timely structural reforms in the Old Continent.

Europe’s economic role in the world economy is in decline. This trend will be exacerbated if Brussels fails to deepen economic ties with the US – or if European companies fail to expand their presence in China and emerging Asia.

The White House has its own nightmare scenarios. If the Obama administration fails to complete the trade talks with Brussels, that would reinforce the perception that transatlantic cooperation is a relic of the past.

If the US administration fails to complete the trade talks in Asia Pacific, America would again be on the sidelines as trade and investment take off in Asia Pacific.

President Obama’s legacy would be threatened, and the 2016 presidential election would delay new talks.

The worst outcome for the White House would be if it failed in both sets of trade talks.

In that case, the White House would have to reach for diluted deals.

In the final analysis, the transatlantic scramble for free-trade deals may be less about free trade and more about evolving trade in the multipolar world economy.

Dr Dan Steinbock is research director of international business at the India, China and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and EU-Centre (Singapore).