Originally Published 2016-07-25 12:42:45 Published on Jul 25, 2016
Will #TTIP survive Brexit?

June 23, 2016, will forever be a sad day in the history of the EU. Nearly 52% of the British population decided to leave the EU, reversing the decision taken in 1975 to join the common market. The ‘leave’ campaigners are exulting; they called the referendum a sort of reform to save the UK from an unstable EU grappling with migration, security and financial stability issues. The repercussions of Brexit are serious. One wonders if the British voter even understood the consequences of exiting before voting. A country that believed in divide-and-rule has just had one stuck on its backside. Whether they like it or not, the fact is that it is a lot of East Europeans and Asians who work hard to keep the British economy growing. The local guys, instead of upping their game and remaining competitive, have decided to keep the EU guys away who actually work to make a living.

Triggering Article 50, formally notifying the intention to withdraw, sets a two-year clock running. After that, the treaties which govern membership would no longer apply to UK. The terms of exit will be negotiated between the UK’s 27 counterparts, and each will have a veto over the conditions. Two vast negotiating teams could be created, far larger than those seen in British renegotiation. The EU side is likely to be headed by one of the current Commissioners. The negotiations would be tedious, as it would be hard agreeing to a new trading partnership, establishing what tariffs and other barriers to entry would come into play, and agreeing to other important issues such as restrictions on free movement of persons between the EU and the UK. According to the EU, the complete exit would take about five years or more, because the EU wants to make the conditions for exit really difficult to discourage others from following suit.

Against this backdrop, discussions are on in the academic community on the fate of the Transatlantic Trade and Investment Partnership (TTIP). TTIP is an ambitious trade and investment agreement being negotiated between the US and EU. According to the United States Trade Representative (USTR), TTIP aims to bolster an already strong relationship to help boost economic growth and add to the over 13 million American and EU jobs already supported by the existing trans-Atlantic relations. TTIP is expected to provide greater compatibility and transparency in trade and investment regulation and, at the same time, maintain high levels of health, safety and environmental protection. The UK and US are important trading partners and there is scepticism that TTIP negotiations would get affected with Brexit. It is obvious that given the UK’s economic importance, the EU’s market for US products has potentially shrunk, making the EU a less attractive trading partner post Brexit. The first intervention came from USTR Mike Froman, who the day after the referendum emphasised that the “economic and strategic rationale for TTIP remains strong.” Much would also depend on the next US administration.

The EU is extremely keen to complete TTIP negotiations. The ‘Euro-realists’ associated with the European Conservatives and Reformists (ECR) Group in the European Parliament, whose vision is to reform the EU by further liberalising the single market, may push for the finishing line. The Euro-realists are against the hidden protectionism that is to be found in national labour laws or trade union practices, which, they argue, weakens Europe’s ability to compete in the global market. Hence, if Euro-realism gathers momentum, the conclusion of TTIP could be a reality soon.

However, it is hard to predict the future course of TTIP negotiations. With three years into the negotiations already, with 30 chapters being discussed and 14 rounds of negotiations complete, the deal is nowhere near completion and there are several differences on both the sides.

TTIP comprises three main blocks: market access for EU and US companies, cooperation on regulatory issues, and global rules of trade such as sustainable development or competition policy. There has been considerable progress on all three. For instance, in market access, especially on tariffs, the two sides have exchanged offers twice.

TTIP has good offers from both the sides, which include 97% of all tariff lines, leaving the remaining 3% for the so-called end-game. Both the sides are working on improvements within the 97% tariff lines for speedy removal of tariffs. On regulatory issues, there have been proposals for cooperation in chemicals, cosmetics, engineering, medical devices, pharmaceuticals, textiles and cars. The EU has initiated discussions on trade and sustainable development, including on labour and environment. It has also proposed a text for a chapter on energy and raw materials, including promoting green innovations and trade of green technologies. It has suggested removing the existing export licences in the US on exports of gas. This could help diversify the energy mix and contribute to energy security in the EU.

During July 11-15, another round of TTIP negotiations took place in Brussels, with an attempt to consolidate as many texts as possible by the summer break. The President of the European Council has urged member countries to continue with TTIP negotiations and reiterated that the Commission has received the mandate to conclude the negotiations by the end of the year. On the contrary, it could happen that once Britain triggers Article 50 to quit the EU, both London’s and Brussels’ resources will be diverted on thrashing out a deal on what access the UK has to the single market, at the expense of working on TTIP. Another factor which could slow down negotiations is that elections are due in both Germany and France in 2017, where a majority are opposed to TTIP. So, a clear picture will emerge only by the beginning of 2018. Though the timeline of end 2016 for TTIP is unlikely to be met, in the long run TTIP will be concluded and survive Brexit. After all, trade between the EU and US is already worth $4.7 trillion and TTIP provides a chance to the EU to increase it.

This commentary originally appeared in Financial Express.

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