The World Bank, earlier this month in its Global Economic Outlook for 2015, warned of ‘disappointing’ global trade growth in the international economy.
This may spell trouble for ongoing negotiations to secure one of the biggest trade deals in history—the free trade agreement between the European Union and the United States.
How could the TTIP help economic growth?
Global trade and economic growth have still not completely recovered since the 2009 financial crisis. The World Bank predicts that import demand will drop 19 percent below its predicted level for 2015, and that medium-term global trade growth will rise to just five percent, still short of the seven percent per year average from the thirty years before the financial crisis.
The Transatlantic Trade and Investment Partnership (TTIP), however, is forecasted to help start to reverse those trends.
If signed, it is expected to increase the EU’s economy by $152 billion, while the U.S. economy would grow by U.S.$110 billion.
In a global trading system in which high-income countries like the U.S. and EU nations account for 65 percent of total global imports, the deal holds a lot of potential for international trade to make a rebound.
Several issues holding the TTIP back
Nevertheless, in mid-January, EU Trade Commissioner Cecilia Malmstrom called for further study on one of the more contentious aspects of the deal, which may slow down the return to negotiations by as much as six months.
The controversial provision in question concerns the Investor-State Dispute Settlement, which would allow companies investing in foreign countries to sue those countries’ governments should changes in local environmental or health laws impact their profits.
The clause is tremendously unpopular in the EU. Opposition groups in the EU are also unhappy with negotiations they characterize as non-transparent, and believe that it will result in an agreement that will erode governments’ capacity to independently make policy decisions.
Meanwhile, some Americans are concerned that U.S. companies will lose their advantage in bidding for U.S. government contracts (the TTIP, when signed, would require equal opportunity for foreign and domestic firms to compete).
Why is growth through trade so important?
While the fears are based on a desire to protect their own economies or legal practices, statistics prove that trade growth is becoming more dependent on general economic growth, due to a range of elements such as the maturing of global value chains, lowered spending in investment, and an increase in government spending.
For example, global GDP is expected to grow by 3 percent (down from an earlier projection of 3.4 percent) in 2015. The World Trade Organization had similarly cut its own expectations for 2015 global trade growth in September 2014, lowering its estimate from a 5.3 percent growth rate to 4 percent. Trade is therefore expected to grow only 1 percent more than global GDP, compared to original forecasts of 1.9 percent more, nearly double the current figure.
This cut only deepens the dependency of rising trade numbers on economic growth, and further demonstrates the need for new trade agreements to increase global trade growth independent of global GDP growth. Trade growth must be nurtured through deals like the TTIP to ensure it continues to occur independently.
What lies ahead for the TTIP
There are concerns that the slowdown of the EU economy, particularly in Germany and in France, may put the trade talks on hiatus, with EU countries being less willing to open up their economies to additional competition from across the pond at the expense of domestic firms’ profits.
Trade specialists on both sides of the negotiations are trying to close the deal before this becomes a major obstacle to the creation of this massive trading bloc.
The two sides have already gone through seven rounds of negotiations since the process began in early 2013, with the next round of negotiations had been expected to begin at the start of February at EU headquarters in Brussels.
How do you think all this is going to unfold? Will protectionism hamper global trade growth?