How Would Europe Benefit from a Transatlantic Free Trade Zone? 'The TTIP Can Help Stabilise the Eurozone'

In matters of free trade between the EU and North America, nothing is set in stone yet - but here in Germany, a major debate has already begun about the 'Transatlantic Trade and Investment Partnership'. Public fear about harmful products and questionable business practices seems to be just as prominent as proclamations of the treaty's benefits. Could Germany and Europe benefit from free exchange of goods with the United States and Canada? ZEW economist Friedrich Heinemann regards TTIP as an opportunity to contribute to stabilising the euro area.

Europe and the US are already close trading partners. Furthermore, a series of bilateral agreements exist between Germany and the US that have consistently resulted in economic benefits. So why is the TTIP being negotiated?

There are several reasons to do so. First, global trade policy requires a newdrive. And in fact, trade liberalisation would be more beneficial with a global than with a regional approach. The World Trade Association is stymied by its sheer size, with 160 members and multiple competing interests. Regional agreements could spur on global negotiations for liberalisation. Second, Europe urgently needs a new growthstimulus. The stabilisation of government finances in the euro area will only be successful if a comprehensive reform policy increases the growth potential and export capacity of the euro nations. TTIP could be a step toward achieving this goal. Third, certain features of current investment protection agreements are in urgent need of reform. TTIP could drive forward reform to the rules of the game.

Investment protection would permit US firms operating in the EU who feel that their interests have been jeopardized to file claims in camera before an arbitration court. Will this process undermine the rule of law?

In fact, today's arbitration procedures do raise important questions in terms of transparency, independence, and with respect to legitimate government interests in the further development of standards. TTIP will be the most significant regional agreement for some time, so its provisions will serve as the blueprint for future agreements worldwide. The negotiations now offer an opportunity to modernise extra-judicial investor protection. For this reason, one should take seriously the criticism of the arbitration procedures but incorporate this criticism into the conception of the final definition of TTIP procedures.

The main argument for a European-American Free Trade Agreement is growth. In the long term, it is intended to boost real per capita income.

It is impossible to quantify the future impact of a free trade agreement on growth and employment in advance with even halfway accuracy. There are too many unknowns in play. However, all serious quantitative studies have agreed on the prognosted signs - a transatlantic free trade zone would increase growth and employment in the EU and would benefit all EU states, even if to varying degrees.

Consumer and environmental advocates worry that the TTIP would bring about the lowering of European standards, and they warn about 'chlorine chickens' and 'hormone beef'.

TTIP is mostly about coordination of industrial norms. So it has more to do with the plug for the electric automobile than the chlorine chicken. Nor would the agreement change anything about the legislative process in the EU. This means that in a post-TTIP world, EU standards could only be changed if the required majorities in the European Council and Parliament approved such changes. In addition, these fears are based on the prejudice that the US would not be concerned with consumer protection, which is an erroneous assumption given the drastic liability risks faced by US producers in the event of consumer damages.

Especially in Germany, the reservations about expansion of transatlantic trade relations are huge. What is the reason for such great resistance?

As an exporting nation, Germany has a particular interest in open markets and effective protection of its foreign investments. Popular resistance is most likely attributable to the widespread disillusionment among Germans regarding US behaviour in the wake of the NSA spying scandal and the War on Terror. A great deal of trust was destroyed in the course of these events, and this is reflected in widespread suspicion about the US’s real motives in the TTIP negotiations. Nevertheless, if Germany acted as a brake on the TTIP, it would mostly be hurting itself.