Deal or No Deal? The Geopolitics of Free Trade Agreements

The world in 2014 looks deceptively similar to a Mediterranean Bazar, which found its culmination at the APEC meeting last month. However, the objects of rhetoric and negotiations are not handbags, perfumes or spices but rather transcontinental trade deals. The Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union as well as the Transpacific Trade Partnership (TTP) between the United States and numerous East Asian and Oceanic countries, both have in common that a conclusion would establish the largest free trade bloc in the world. Concurrently, China, excluded from either, pushes the idea of a meaningful transpacific agreement, including both superpowers.  Yet, beyond the strictly economic implications of this liberal utopia, trade deals have hardly been more political than the current ones. What is at stake? Nothing less than the nature of the economic and hence implicitly political order in the decades to come.

The economic dynamism in East Asia, the shale gas boom in the US, an aging population and not least the continuing economic stagnation of the Eurozone seems to be provincialising Europe. Yet, the conclusion of TTIP could postpone its relative economic decay. Despite President’s Obama initial lack of enthusiasm, negotiations have recently gained momentum, amid rising domestic fear of undermining health and safety standards in Europe. Tariffs between the two current economic super-blocs are already low. The pivotal focus of the agreement lies on decreasing non-tariff barriers, such as separate car safety regulations which requires, for example, German cars to be tested in Germany and in the US against different criteria. Likewise, homogenous tests for new drugs could provide a substantial boom for the pharmaceutical industry. It is estimated that reducing only half of these non-tariff barriers could increase GDP on both shores of the Atlantic by 3% – a boost particularly crisis-ridden Europe desperately needs. The political consequences of such deals, however, could be even more momentous. Firstly, TTIP could reinvigorate the transatlantic community, which has been pulled apart by the US’ pivot to Asia, European introspection and recent surveillance scandals. Reunited, they could face the challenge of emerging economies proposing alternative economic and political rules of the game, by reaffirming liberal international standards and norms for the 21st century. The outgoing NATO Secretary General Rasmussen expressed the need for the establishment of an ‘Economic NATO’ to write the rules of globalisation rather than being subjected to them. Secondly, it could help legitimise the EU – in accordance with the subsidiarity principle – in the eyes of Eurosceptic resentments in the UK and beyond by using the leverage of an integrated entity to foster economic prosperity.

Image courtesy of U.S. Embassy The Hague, © 2014, some rights reserved.
Image courtesy of U.S. Embassy The Hague, © 2014, some rights reserved.

Meanwhile, the US attempts to substantiate the ‘Pivot to Asia’ by accomplishing a transpacific free trade area with eleven other nations including Japan, Australia and Vietnam. It is aimed not only at dismantling tariffs but also address the somewhat more difficult subjects of labour and environmental standards, intellectual property rights and government procurement. Like the TTIP, this agreement would ensure the preponderance of western economic standards – a key reason for China’s dislike of it and for its talk of 21st century containment. Nonetheless, the US has never ruled out allowing China to join TPP, but the sophisticated economic and political conditions it imposes seem to make this unlikely for the foreseeable future. In contrast, Beijing favours the idea of a Free-Trade Area of the Asia-Pacific (FTAAP), amid other initiatives to establish its economic dominance in the region such as the Silk Road Economic Belt, financed by the newly founded, deep-pocketed Asian Infrastructure Bank. China successfully pushed APEC leaders to endorse FTAAP in theory, whilst the US demonstrated fierce resistance. From a Chinese perspective, it is not hard to see the frustration at Washington’s ostensible attempts to block any Chinese economic initiative. And indeed, the seminal incongruences subverting the Sino-US relations go beyond pragmatic economic issues. Fundamentally, the success of TTP would mean a continued Pax Americana in East Asia – the Chinese backyard and perceived natural sphere of influence. Strongly antagonised by the immutability of a western-shaped status quo, the People’s Republic feels the time to write the rules governing Asia has come.

The transatlantic and transpacific initiatives bear potential for confrontation with China, if conducted in a zero-sum, exclusive manner. China’s, but also other postcolonial countries’ economic rise and henceforth increased political weight appear inextricable. Hardly any country would doubt that the US security umbrella in East Asia has not fostered economic rise over the past decades, but western shaped capitalist institutions and rules provide more room for contention. As long as primarily the US will not accommodate China’s legitimate demands to be more actively engaged in multilateral rule-making by, for example, being granted a fair say in the IMF – the US being the only country to oppose such a reform – China will pursue alternative plans, potentially periling the peaceful order. While many ideas deserve scrutiny against transparency and judiciary standards, the apparent Chinese propensity to participate in global rules-making and multilateralism should be principally embraced and incentivised rather than contained. The bilateral agreement on curbing carbon emissions at the APEC meeting may serve as the rope for a slippery road ahead towards a more constructive partnership, culminating in a comprehensive trade agreement including the US and China. Lest we forget history; one of the most influential trade agreements in the past century, the European Coal and Steel Community of 1957, paved the path for German-France reconciliation to a now peacefully integrated Europe. Cooperation, coexistence or conflict? Trade deal conclusions in the years to come could determine the trajectory of the global order.

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