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In July 2013, the United States and the European Union launched negotiations toward reaching a free trade and investment agreement that would liberalize trade and investments, coordinate trade regulations, enhance IP protection, and moderate government procurement policies. The US and the EU are the largest partners in trade and investment in the world and their combined economies make up about half of world GDP. A free trade and investment agreement would further this huge economic partnership and stimulate their economies and the economy of the world. Negotiations face challenges of multi-layers of negotiations and complex political systems, persistent conflict over trade restrictions in agriculture and food industries, the prospect of diminished sovereignty by national governments, and US Congress unhappiness with some EU policies.

Keywords: Trade, EU, US, NTB, Government procurement, GDP growth.


The European Union (EU) is an economic and political union of European countries started in the early 1950s in the form of the European Coal and Steel Community and the European Economic Community. It has grown from the founding six countries of Belgium, France, Germany, Italy, Luxembourg, and the Netherlands to a grand union of twenty eight countries with a combined population of over 500 million people and, as of 2013, a GDP of $17.26 trillion, the equivalent of 23% of the world economy (World Economic, 2013). As Table 1 shows, the EU is the largest trade partner with the United States generating total merchandize exports and imports of $649.23 billion (US Trade, 2013). Even in the service trade, the US is the largest service trade partner with the EU with 29% of EU service exports going to the US and 31% of EU service imports arriving from the US. The volume of their economies and trade, coupled with sluggish economic growth and the rise of new economies, have prompted interest on the part of Washington and Brussels to explore the possibility of building an alliance to boost their economies, trade, and employment.

In July 2013, negotiations began between the United States and the European Union for the purpose of forming a transatlantic agreement on trade, investment, and trade regulations. The proposed agreement is referred to as the Transatlantic Trade and Investment Partnership (TTIP). If successful, the agreement will cover the two largest economies in the world making up about 45% of the world GDP (World Bank, 2014), 33% of world trade in goods and 42% in services. With regard to bilateral trade and investment, the volumes and trends are equally impressive. According to the US Trade Representative's office, exports to the EU make up 21% of US exports and imports make up 19% of total US imports. Roughly speaking, one out of every five dollars of US exports or imports are to or from EU. Seventeen percent of EU merchandize exports and 29% of service exports go to the US. Eleven percent of EU merchandize imports and 31% of service imports come from the US. However, the relative share of EU-US trade has been declining, especially from the perspective of the European Union. In the decade between 2000 and 2011, while EU exports to the world rose by 7.6% a year, exports to the US grew by a mere 1%. As a result, the share of the US market in EU merchandize exports declined from 28.1% to a low of 16.9%, an alarming drop for a continent whose economy is strongly reliant on exports, where exports make up 177% of Luxembourg's GDP to 27% of France's. In every industry, as shown in figure 1, the EU exports more to the US than the US to the EU.


TTIP negotiation is divided into fifteen subject matters such as trade and investment barriers, transparency of trade regulations, intellectual property, worker rights, the environment, and government procurement. The topics are discussed in publications by the US Trade Representative (USTR) and European Commission (EC). The following is a sample of the key negotiation areas.
EU-US Merchandize Trade, 2011
(Billions of euros)

          Agriculture  Mineral  Chemicals  Machines  Textile  Other
                                           & Autos

EU to US    13.8       24.6     61.8       104.4     3.7      42
US to EU    11.3       23.1     40.1        70.8     1.3      37.4

Note: Table made from bar graph.

Removal of Tariffs on Merchandize Exports. Every day, the US ships $730 million worth of exports to the EU and the US wants to eliminate tariffs on exports to give them the same treatment awarded non-EU countries who are members of the EU free trade agreements, such as Chile, South Korea, Mexico, and South Africa whose exports are duty-free. With regard to agriculture exports, the US seeks significant reduction in tariffs (and regulations and quotas). The United States is the largest agriculture exporter in the world with annual exports totaling $145 billion. However, only 7% are destined for the EU, in contrast to the 21% for total US exports to the EU. To illustrate this, US apple growers pay 7% duty to the EU, whereas the EU growers pay no duties on their exports to the US. US olive oil exporters pay $1,680 per ton, while EU producers pay only $34 per ton on their exports to the US. In the area of tariffs, and although transatlantic tariff barriers are comparatively low with average MFN tariffs of the US and EU at 3.5% and 5.2%, respectively, the US and the EU maintain what is called "tariff peaks," i.e., highest tariffs, in sectors and industries deemed especially important in their respective countries. From the perspective of the US, tariffs are an important negotiation topic because in just about every industry, EU tariffs on US exports are higher than US tariffs on EU exports, as illustrated in Table 2.

Non-tariff Barriers. Non-tariff barriers are defined as non-price and non-quantity restrictions on trade in goods, services, and investment at federal and state levels. This includes at the border measures such as customs procedures, licensing and permit requirements applied at the border, as well as behind-the-border measures flowing from domestic laws and regulations such as sanitary and phytosantiry (SPS) health and environment regulations that apply to commodities, food, and animal products and that would allow or not allow the importation of affected products altogether. The US is focusing on a regulation process and demands greater "transparency, participation, and accountability" in the regulatory processes that determine such regulations (Sanitary, 2014). USTR's many publications in this regard make frequent and repeated references to "promotion of greater transparency, participation and accountability in development of regulations," to open the legislative process to a "wide range of stakeholders," domestic and foreign (US Objectives, 2014). Europeans place high importance on non-tariff trade regulations as well, because NTBs can limit access to export markets and/or increase costs. Economic analysis conducted by EC consultations shows that NTBs can increase costs by as much as 73% (as shown in a later section--Table 4). This is especially problematic for small businesses that cannot afford the added costs and end up being shut out of the export market.

Services. Once again, the US is the largest service exporter in the world with exports of over $600 billion a year with an additional $1.1 trillion worth of services provided by affiliates of US companies abroad. With regard to trade in services, the US wants TTIP to address three broad goals: Open EU markets to US service companies, such as transportation, insurance, entertainment, telecommunication and the like, and removal of barriers, such as nationality of service or provider; exercise higher level regulations of the finance and investment industry in Europe (that the US considers to be loosely regulated); yet retain full discretion to "regulate the financial sector and ensure the stability and integrity of the US financial system" ( The EC also wants to open US service industries, such as banking, to EU companies, non-discrimination against non-local companies, and to establish common regulatory disciplines, but also retain discretion over some industries, such as health care and culture, which is discussed in a later section of the paper.

Electronic Commerce. The US wants to see more electronic commerce of digital products, such as music, film, and software, without the obstacles of special duties on digital products, discrimination against such products, insistence on selling digital products on CDs or DVDs, or the impediments pertaining to electronic payment and signature. Furthermore, the US wants to enforce previously negotiated non-binding rules pertaining to supporting the global development of Information and Communication Technology (ICT) services, including the Internet and network-based applications, Internet advertising, data flow and storage across borders, facilitating cross-border supply of services, and granting of operating licenses. Interestingly, EC publications do not promote this subject matter and reservations have been expressed about electronic commerce of culture products such as films and music.

Investment. The US maintains Bilateral Investment Treaties (BIT) with 40 countries worldwide and Free Trade Agreements (FTA) containing Investment Chapters with 17 countries. With regard to TTIP, the US seeks to ensure that US investors in the EU are treated equally to EU investors and to reduce impediments to the establishment and operation of US investment businesses in Europe. The US also seeks to establish and maintain reasonable procedures for resolving disputes between US investors and investment firms, on the one hand, and EU or EU member governments, a matter of significant controversy as will be discussed later. Related to investment and trade, an interesting area is intra-corporate transfers. Sales of commercial services by US subsidiaries in EU are about $500 billion a year and sales by EU subsidiaries in the US are about $382 billion. Compared to export numbers mentioned earlier, this so-called intra-corporate trade is much higher than trade between the countries. In other words, trade derived from direct investments (subsidiaries of MNCs) is greater than direct trade (USTR, 2014). This fact has not gone unnoticed by the parties who decided to emphasize bilateral direct investments, which was a remarkable $3.7 trillion in 2011 with $2.1 trillion US investments in the EU and $ 1.6 trillion EU investments in the US, and who titled the proposed agreement Trade and Investment Partnership.

Government Procurement. Negotiations address the area of government procurement of goods and services from private sector companies to expand the opportunity for US and EU businesses to bid on government contracts in areas of construction, engineering, medical services, information technology services, consulting, and all government procurements. Negotiations aim to provide US and EU suppliers with favorable treatment as that accorded to domestic suppliers. EU negotiators emphasize that access to US public procurement is a difficult area for European firms and point to the fact that the US has limited legally binding international commitments in this area, whether under the WTO Government Procurement Agreement (GPA) or in the US bilateral free trade agreements (FTAs). Only 32% of US procurement is open to EU businesses and the EU wants to negotiate an expansion. The EU aims to increase the coverage of federal procurement, which tends to be more open than State government procurement, increase the number of States covered by GPA, and removal of "Buy American" provisions in government-funded contracts.

Labor Rights and the Environment. The United States and Europe maintain high standards of protection of workers' rights and make reference to this subject in FTAs they respectively negotiate with other countries. Within TTIP, negotiators want to affirm respect and adherence to internationally recognized labor rights and ensure effective enforcement of labor laws concerning worker rights. In the United States, the national labor federation of AFL-CIO has issued appeals to the TTIP to address issues of workers' rights to make sure that multinational corporations do not use such trade agreement to "move jobs from the US" to some EU countries that do not yet have advanced workers' rights, such as Romania, Bulgaria, Cyprus, and Slovakia. The labor federation wants TTIP negotiations to protect against the tendency by some East European EU countries to engage in so-called "labor market flexibilities" to attract foreign direct investment but which end up weakening protection of organized labor (AFL-CIO, 2014). With regard to the environment, and considering that the US and Europe have high levels of environmental protection laws, TTIP negotiation aims to obtain consistent priorities and commitments by all involved governments to environmental protection and conservation, to liberalize trade in cutting-edge environmental technologies like clean energy, the protection of wild life and protected species, and to address the issues of regulating fisheries and protection against illegal logging.

Other Issues. TTIP negotiations address protection of intellectual property (IP), especially as the United States and the EU have the most successful creative industries in pharmaceutical, medical, and information technologies that are in need of coordinated enforcement and protection of IP rights. The negotiations also tackle the subject matter of state-owned business enterprises (SOE) and the vast subsidies they receive which distort the balance of competition between such enterprises and businesses that receive no subsidy. This is a challenging subject because removal of government ownership through privatization is a vast scheme that goes beyond TTIP negotiations. Removal of subsidies is politically difficult due to strong national industrial policies that support subsidies. Trade and investment dispute settlement is another issue that TTIP is addressing to establish fair, transparent, and timely and effective procedures to settle disputes arising under the agreement, including the use of consultation and expeditious non-antagonistic methods of mediation and arbitration.


In light of the wide and complex topics of negotiation, the parties appreciate the difficulty of reaching agreements that require regulatory convergence and transparency, as discussed above, especially in the areas of non-tariff trade laws (NTB), and opening up government procurement to foreign suppliers. While the Europeans realize that NTBs are complex issues to deal with and change, they place high importance on negotiating and alleviating NTBS for three major reasons: (1) The belief that 80% of projected EU's economic gains from TTIP will be the result of NTB reductions and related cost moderations; (2) while recognizing that EU tariffs on merchandize trade are higher than US tariffs, Europeans are of the belief that concentrating on reducing tariffs may have limited positive effects, since EU and US tariffs average between 3 and 5% ; (3) and the perception that US NTBs are significantly higher than those of the EU.

To evaluate the significance of NTBs and their impact on trade, the parties relied on major studies that were commissioned following the US-EU Summit of April 2007. Surveys were conducted of US and EU business firms engaged in transatlantic trade and investment, where they were asked to evaluate the relative significance of NTBs on a scale of 0 to 100. A summary of the findings is presented in Table 3.

NTBs are higher on merchandize trade than on service trade. Considering that merchandize makes up the bulk of EU exports, and the fact reported earlier that EU merchandize exports to the US have been in relative decline recently, it is not surprising that EU negotiators want to reduce merchandize NTBs, the index to which ranges from a score of 23 for pharmaceuticals to a high of 56 for the Aerospace industry. That being said, the data points to two interesting findings. The average merchandize NTB index is about the same for the US and EU with scores of 40.7 and 40.9. Secondly, the indices of perceived barriers may not be alarming. With US NTBs ranging from 20 to 56 and the EU NTBs ranging from 18 to 55, no industry was rated high, as in 80 or 90. Cross-national comparisons with other countries/regions of the world would be necessary to assess the relative significance of the above numbers, but the slightly higher US NTBs have not stopped the EU from exporting more merchandize to the US than the other way around. Another way to assess the significance of the NTBs is to examine their impact on cost and price of traded merchandize. Ecorys (2009) addressed this question and reported the analysis in the form of percentage cost reduction or percentage tariff equivalent price increase. A brief summary of the key findings are in Table 4.

Within EU NTBs, merchandize percentages ranged from a low of 11.3 for wood to a high of 56.8 for food and a middle percentage of 25.5 for automobiles. Service percentages ranged from 2 for air transport to 14.9 for business and technology services. Within the US NTBs, merchandize percentages ranged from 7.7 for wood to 73.3 for food and a middle percentage of 26.8 for automobiles. Service percentages ranged from 1.7 for communications to 31.7 for finance. It is interesting to note that the medium high numbers for automobiles have not stopped that product from being the largest traded merchandize, as reported in figure 1. A second observation is the high numbers for food products, with the US NTBs costing EU exports the equivalent of a 73.3 tariff increase (increase in existing tariffs) and EU NTBs costing US exports the equivalent of a 56.8 tariff increase, with a difference of 16.5% higher for US NTBs. One cannot but wonder if the US is responding to the EU's unusually high tariffs of 14.6% on food products, as presented in Table 2, by using non-tariff means to "level the playing field!"


TTIP is ambitious and promising, though not without controversy. Some form of such an alliance was proposed in the early 1990s and in 2006 by German Chancellor Angela Merkel in response to the collapse of the Doha round of WTO trade negotiations. Officially, TTIP negotiation took off in 2013, with many rounds of negotiation on both sides of the Atlantic, in an attempt to conclude negotiations in a timely framework. The scope of the negotiations is wide, but the key issues revolve around trade barriers of tariffs and non-tariffs, convergence of trade regulations, and further liberalization of government procurement. The issues are difficult and the regulatory differences are wide and deep rooted in history, law, and political structure. In light of the challenge, the EU and the US have explored the option of a "living agreement" that allows for gradual regulatory convergence over time. Options considered were to reach agreements on "tariff-only," or "service-only," or "procurement-only," or the "comprehensive" option with two scenarios: a less ambitious agreement that includes 10% reduction in trade costs from NTBs and 98% tariff removal, and an ambitious scenario that includes elimination of 25% of NTB costs and 100% of tariffs (EC, 2013). The long term macroeconomic effects of the options as they may impact the economies are summarized in Table 5.

Clearly, the ambitious and comprehensive agreement could bring sizable annual GDP growth. The European Union commissioned a study by the Centre for Economic Policy Research of London to analyze and project the potential benefits of the comprehensive TTIP. The study confirms annual economic growth of [euro]119 billion for the EU, [euro]95 billion for the US, and [euro]100 billion for world GDP. The study also projects export gains of [euro]220 billion for the EU and [euro]240 billion for the US. Projected growth of EU exports cut across many industries. Metals will rise by 12%, foods 9%, chemicals 9%, manufacturing 6%, and so on. An interesting case is the projected rise in automobile exports to the US. The study projects an impressive 149% rise in EU automobile exports to the US due to freer supply chains for parts and components, closer integration of transatlantic auto industries, and higher integration of US and EU safety and engineering standards (Francois et. al., 2013). Additionally, and because of the large size of the combined EU and US economies and trade, their respective world-wide trade partners would find it necessary to coordinate their trade regulations with those of TTIP, thus further lowering global trade barriers.

This rosy picture is not without reservations, as in the important matter of investor-state dispute settlements (ISDS). A coalition of environmentalists, labor organizations, and consumer groups on both sides of the Atlantic sent letters to USTR and the EC demanding removal of ISDS from TTIP talks. In their belief, the dispute settlement provision allows corporations to challenge government domestic policies, but neither governments nor individuals are given comparable rights to hold corporations accountable in their respective home countries. ISDS is usually part of a trade and investment agreement between sovereign governments that gives a foreign investor, e.g., a MNC, from country A the rights to initiate a legal challenge against the government of the host country B where the MNC may have direct investment operations, as in oil drilling or manufacturing. ISDS is contained in many free trade and investment agreements, such as NAFTA. In the context of TTIP, ISDS may produce yet another impediment as discussed later.

Another impediment is the EU's "protected designations of origin" (PDO) and "protected geographical indications" (PGI) regulations that prohibit US food and dairy producers from naming their products if the product name is related to a province in Europe. US dairy producers may not use the product name Parmesan cheese because that name, Parmesan, is reserved for Italian producers in the Parma province. Feta cheese can only be used by dairy growers in Greece, Champagne can only be used by producers of sparkling wine in the Champagne province in France, and so on. US dairy exports to Europe are not allowed to use these product names and, as may be expected, this matter angers the dairy and food industries in the US. The anger has reached the US Senate where a majority decided in March 2014 to support the US dairy industry against the EU (Carney, 2014). As stated earlier, the EU's "ambitious" TTIP agreement would remove only 25% of NTBs and leave 75% in place. If PDO and/or PGI fall in the 75% in place, the Senate will not ratify TTIP! A reasonable compromise must be arrived at.

France has also voiced a major reservation against TTIP by declaring that the "culture" industry should be excluded from TTIP negotiation in order to protect "cultural diversity." In particular, France wants to exclude cinemas, multi-media, entertainment, and audio-visual products and services from negotiation. Research shows that French cinemas happen to be currently enjoying a historic growth and have a strong market share in France and globally. In 2013, the French cinema sold 203 million tickets, as compared to 172 in the UK, 135 in Germany, 101 in Italy and 91 million in Spain, resulting in a market share of 40% for French cinema, as compared to 18 to 32 percent for other European cinemas (Oxford Analytica, 2013). To complicate matters, the European Parliament, while endorsing TTIP negotiation, also expressed support for the protection of European culture and the exclusion of culture and audio-visual products from the negotiation. It so happens that US films are a major (and in some years, the major) US service export, generating billions of dollars in revenue. Excluding US films from trade talks will not go well with the US.

Research points to many other impediments, such as the UK's desire to include an "opt-out" provision to allow the UK to opt out of parts of TTIP, especially pertaining to ISDS discussed earlier, in order to protect the integrity of the UK's national and public health care industry, which was founded in 1948 and which is regarded a source of national pride in Britain. However, trade talks always encounter objections and challenges and if the negotiating parties are serious about reaching an agreement, which the EU and the US are in this case, resolutions will be found. In the context of NAFTA, Canada insisted on excluding culture, Mexico excluded oil and energy, and the US excluded broadcasting, media, and air transport and postponed liberalizing logging and trucking, among others. In the end, NAFTA was negotiated and ratified and, chances are, so will TTIP.


AFL-CIO. (2014). US-EU Free Trade Agreement (TTIP). Retrieved April 29, 2014 from

Carney, B. (2014). What's more American than Parmesan cheese? Wall Street Journal. March 25, A13.

EC. (2013). Commission staff working document--executive summary of the impact assessment on the future of the EU-US trade relations. European Commission. Strasbourgh, March 12. SWD (2013) 69 Final.

Ecorys. (2009). Non-tariff measures in EU-US trade and investment - an economic analysis. Reference: OJ 2007/S 180-219493, Final Report. Ecorys, Netherland. December 11.

Francois, J., Manchin, M., Norberg, H., Pindyuk, O., & Tomberger, P. (2013). Reducing trans-Atlantic barriers to trade and investment. Center for Economic Policy. European Commission, TRADE 10/A2/A16.

Oxford Analytica. (2013). France: Culture defence will dilute, not destroy TTIP. Oxford Analytica. Retrieved May 29, 2014 from

Sanitary. (2014). Sanitary and phytosanitary measures and technical barriers to trade. Office of the US Trade Representative. Retrieved May 24, 2014 from

US Objectives. (2014). US objectives, US benefits in the Transatlantic Trade and Investment Partnership: A detailed view. United States Trade Representative. Retrieved May 24, 2014 from

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Suhail Abboushi, Palumbo Donahue School of Business at Duquesne University
Largest Merchandize Trade Partners of the United States
(Billions of dollars)

Trade Partner             US Exports  US Imports  Total Trade

European Union            262.11      387.12      649.23
Canada                    292.7       324.2       616.7
People Republic of China  110.6       425.6       536.2
Mexico                    216.3       277.7       494
Japan                      70         146.4       216.4

Source: US Census Bureau,

Average Tariff Rates (%)

    Wood  Metals  Machinery  Transport  Vehicles  Electricals

US  0.2    1.3       0.8       0.2        1.2       0.3
EU  0.5    1.6       1.3       1.3        8.0       0.6

    Chemicals  Food

US    1.2       3.3
EU    2.3      14.6

Source: WTO, UNCTAD data cited in Francois (2013).

Perceived NTB Index

Dimension/Sector             US NTBs  EU NTBs

Average for services          35.81    27.05
Average for merchandize       40.73    40.99
Industries with higher NTBs   16        7
Industries with lower NTBs     7       16

Source: Ecorys (2009).

Tariff-Equivalent Price Increases Due to NTBs (%)

Sector               EU NTBs    US NTBs

Merchandize average  21.5       25.4
Merchandize range    11.3-56.8   7.7-73.3
Service average       8.5        8.9
Service range         2.0-14.9   1.7-31.7

Summary of Macroeconomic Annual Effect of TTIP Options
(Millions of euros)

Parameter         Tariff Only  Services Only  Procurement

Change in EU GDP    23,753       5,298          6,367
Change in US GDP     9,447       7,356          1,875

Parameter         Less Ambitious  Ambitious
                  Comprehensive   Comprehensive

Change in EU GDP     68,274       119,212
Change in US GDP     49,543        94,904

Source: Ecorys (2009).
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Author:Abboushi, Suhail
Publication:Journal of Competitiveness Studies
Article Type:Report
Geographic Code:1USA
Date:Mar 22, 2017

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