Categorized | Europe, Global Economy, US, World

CETA and TPP: Why Understanding Trade Matters Politically

With an overwhelming majority of 408 votes against 254, the European Parliament recently approved the Comprehensive Economic and Trade Agreement (CETA) with Canada. This came only three weeks after Donald Trump’s formal withdrawal from the Trans-Pacific Partnership (TPP) – a deal involving 12 nations around the Pacific Ocean. As trade is silently shaking world politics to the core, there’s a pressing need for voters to think about its real implications.

The Triumph of the CETA

Negotiations on the CETA began in 2008. Right from the start, the aim of the agreement was to stimulate growth and speed up economic recovery, creating a friendlier environment for business. According to the European Commission, firms will gain from a 98% reduction of customs duties, the removal of barriers to investment, and new opportunity to bid for public contracts overseas. Another key clause that would greatly favour business is the ‘infamous’ Investor-state Dispute Settlement, which would allow firms to sue the governments involved for alleged discrimination. Unsurprisingly, the ISDS has attracted the most criticism and raised serious concerns over national sovereignty throughout Europe.

It’s the ‘Lexus’ against the ‘olive tree’, in Thomas Friedman’s jargon. On the one hand, free trade feeds employment, growth and innovation, benefiting all consumers and most producers and workers. The result of this is efficiency (the ‘Lexus’). On the other hand, globalised markets are making the world ‘flatter’ by ‘eroding’ national traditions (the ‘olive trees’); not only cultural – as Friedman would say –, but also political and economic. As a free-trade agreement, the CETA could threaten local environments, food safety and workers’ rights. The ISDS, for its part, will essentially challenge governments’ attempts to protect, and regulate in, areas involved in the agreement.

How large a piece of our olive tree are we willing to give away for more efficiency? After all, it’s hard to attract business if it’s going to face the costs of different national regulatory systems; hence the ISDS. Unlike its American cousin (the TTIP), the CETA will still allow governments to legislate on the environment and forbid the sale of hormone-treated beef in Europe, while still offering some new opportunities to business and prospects of economic growth. However, demand for, and understanding of, economic efficiency among citizens seems worryingly low. Despite these promises, some think lower barriers and the ISDS will take too many ‘olives’ from their ‘trees’.

This view matters a lot for the future of the EU. Rising nationalism is already posing a great threat to the union, driving more and more people against it. After the British referendum, right-wing populist parties in Europe are gaining strength on the way to the upcoming national elections. These parties are playing precisely with the fears that citizens have regarding the CETA, urging to protect the nation from ‘foreign evil’. Surely, passing the deal amidst strong opposition was a questionable move – one likely to widen support for populism and endanger the survival of the union. That, however, is also another reason why those who oppose it should perhaps reconsider its benefits.

The Death of the TPP

In the opposite corner of the globe, the fate of the TPP is reshaping the geopolitics of the Asia-Pacific region. In addition to the same economic benefits offered by the CETA, the TPP was also conceived politically to reinforce the bonds between the US and its Asian allies. In an article published on April 20, 2016, the Center for Strategic and International Studies (CSIS) emphasises the geopolitical stakes of the agreement. Along with military power, it is argued, trade has historically played a key role in maintaining a ‘rules-based’ order in the region. In the face of Asia’s increasing overdependence on China, the deal would have kept US influence in the area.

In its current form, the TPP has no future. The withdrawal of the US has caused irreparable damage to the agreement. Admittedly, the other 11 countries involved have mixed views on the subject. Several members, including Australia, New Zealand, Chile and Peru, seem interested in pursuing a ‘TPP 12 minus one’ – without the United States. Others, such as Canada and Japan, appear reluctant to go ahead without their most powerful ally. In any case, the deal legally requires ratification by at least six countries representing at least 85% of the GDP of the original twelve members. With the US out, there’s no way the remaining parties can meet such requirement.

The strategic consequences of this depend on other economic agreements taking shape in Asia, none of which involve the US. As reported by the CSIS, these groupings include the Asia Infrastructure Investment Bank (AIIB), the Regional Comprehensive Economic Partnership (RCEP), and an on-going trilateral agreement among China, Japan and South Korea. This means that Trump’s decision will likely increase Chinese authority to set the terms of trade in the region, thus creating strategic opportunities for Beijing. Stronger Chinese trade relationships with traditional US partners could legitimise China’s weapons build-up in the South China Sea and put an end to the liberal ‘rules-based’ order in the area.

One thing we can learn from this is that understanding the political and economic effects of trade is both our right and our duty as citizens. In doing that, EU citizens could change the result of key upcoming national elections, the future of the CETA itself and of the EU for the better. As for the TPP, the regional deals that are replacing it may, in the long term, seriously harm American workers. Despite Trump’s unexpected shifts in foreign military policy lately, let’s not forget about the consequences of his stance on trade. In a competitive globalised world, making the wrong decisions can be very costly.

 

Image: Wikicommons

Gianmarco Capati

About Gianmarco Capati

Gianmarco Capati holds a BA in International Affairs from John Cabot University, and will shortly pursue an MA in International Political Economy at King's College London. His interests range from the politics of global finance to questions of power and wealth in the globalized world economy.

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