14 July 2016

The strategic case for TTIP is greater – and the stakes higher – now that the UK has decided to leave the EU. But TTIP will create new risks for the West whether it succeeds or fails.


Gregor Irwin

Chief economist, Global Counsel


The container ship Osaka Express, operated by Hapag-Lloyd AG, leaves the container terminal at the port in Southampton, UK, on 2 October 2015. Photo: Simon Dawson/Bloomberg/Getty Images.
The container ship Osaka Express, operated by Hapag-Lloyd AG, leaves the container terminal at the port in Southampton, UK, on 2 October 2015. Photo: Getty Images.



  • The Transatlantic Trade and Investment Partnership (TTIP) – currently being negotiated between the United States and the European Union – represents a bolder and riskier approach to liberalizing trade than traditional trade deals. It is bolder because it aims to cover a wide range of policy issues that are not typically included, and because it aims to be strategic and extraterritorial in its impact. It is riskier because of the difficulty in getting agreement on these issues between the parties concerned, and because the responses of other countries are uncertain.
  • EU and US negotiators have much work to do if a deal is to be reached that realizes TTIP’s full potential. While progress has been made on tariff reduction, considerable ground still needs to be covered on setting standards and regulations affecting trade, which is where TTIP has the most potential to make an impact at a strategic level. Meanwhile, trade scepticism is rising on both sides of the Atlantic, with concerns about the impact of deals like TTIP on jobs and regulatory standards. The negotiation process is also now complicated by the United Kingdom’s decision to leave the EU. Making a clear and credible strategic case for TTIP may be necessary if the negotiations are to continue and be successful.
  • If the United States and the EU are able to agree on the regulations and standards affecting international trade, they will have the scale to define these globally for years to come. International leadership in this area brings commercial advantages and benefits for consumers in the EU and the United States, and it also often is a global public good. However, it sometimes pits EU and US interests against those of other countries, creating scope for conflict over policies in areas such as the rules governing state-owned enterprises.
  • There would be benefits to the United Kingdom, the EU and the United States if the United Kingdom joins TTIP once it is agreed. In the intervening period, it makes sense for the United Kingdom to participate actively in EU decisions regarding TTIP while still a member of the EU, as this could help to smooth an eventual British accession to the partnership.
  • The soft-power benefits from TTIP are potentially substantial, but they would only be maximized if other strategically important countries, such as Turkey, are able to join. Perhaps the clearest sign of TTIP being likely to meet or exceed the highest ambitions for its strategic impact would be if it has an even broader geographical reach, drawing in countries in other regions.
  • The potential security benefits from TTIP are marginal and overhyped. The benefits that unity on trade would bring to transatlantic security are intangible and hard to substantiate. The energy security benefits are likely to be limited, as the volumes of US liquefied natural gas (LNG) exports to the EU are likely to be small. If the EU and the United States are serious about using TTIP to improve security, they should include defence procurement, but this has never been on the agenda.
  • Not only do the differences between the EU and the United States mean that it will be difficult to get a deal, they also constrain how any deal would be implemented and exploited for strategic purposes. If TTIP is to succeed at a strategic level, both sides must be disciplined, consistent and coordinated in using it as the reference point in their negotiations with other countries. 
  • The United States is more capable of acting strategically than the EU, in part because of the difficulties for EU member states in coalescing around a shared set of strategic objectives. Until the EU is able to do this, the United States is likely to have much more influence over the strategic direction of TTIP. If the EU wants to bridge this gap, then the European Council should start by reaching a political agreement on its objectives and priorities for bringing other countries into TTIP.
  • There are also strategic risks from TTIP. One is that by emphasizing the values that are reflected in international rules, the EU and the United States could make it harder for other countries to accept these rules, or make TTIP seem like an attempt to reassert the old world order. Thus, instead of having a magnetic effect, TTIP could create a rift with emerging countries, with some choosing to maintain a distance for political reasons.
  • The bigger risk for TTIP, however, is failure. If negotiations break down or a deal is reached that falls short of the ambition set for it, this would send a damaging signal to the rest of the world about the inability of the EU and the United States to work together. The damage would be all the greater if the process was acrimonious, or if it exposed US indifference to Europe or latent anti-Americanism in the EU. The United Kingdom’s decision to leave the EU raises the stakes, particularly for the latter, as it is a blow to the international credibility of the EU. Agreeing TTIP would help to offset this blow, while failure would amplify it.