The Trans-Pacific Partnership was signed on Feb. 4 in Auckland. The TPP member states account for around 40% of the global economy and each have now two years to ratify or reject the agreement. This was to be expected and it is therefore not a geopolitical event. However, it is anticipated that media – and maybe even politicians – will comment on the timing of the signing: before the TTIP was signed. Some will even allude to the “US pivoting to Asia” theme, even if that has apparently lost popularity recently, with crises maintaining the US focus on Europe (and the Middle East).
But even with the little optimism for a final TTIP text for to be agreed upon by the end of the year, the signing of the TPP actually indicates that an ambitious TTIP is possible. The Pacific Rim agreement has become of high geopolitical importance when Japan joined in – formally acknowledging the regional block of influence while also admitting the necessity of such an agreement to support the reforms Japan needed internally. The TTIP has been shaped from the very beginning to serve for a better coordination between the two most important global partners: the US and the EU. Therefore, considering the two agreements are covering the oceans bordering the Americas, they have never really been in competition with one another: the US is looking to achieve a coordinated, centered trade and investment harmonized system that will also support its strategic, security related partnerships. In the case of the TTIP in particular, considering the US national interest and traditional linkage to Europe, the negotiations are focusing on setting up a harmonized regulatory regime, modeling and resetting the global rules for economic integration.
The ratification of TPP and negotiations for TTIP come at an interesting time. As I have said before, the 21st century has marked the return of political economy. The news coming during the last weeks not only support this idea but are also are painting the background for an interesting inflection point for the old trading and investment system and the way it is being reshaped. The latest data that the United Nations Conference on Trade and Development has released is showing a new pattern is emerging, considering that foreign investment levels have fallen in export countries during the last year.
Exports have generally driven investments up. Data from UNCTAD cites the end of commodity super-cycle as marking the drop in investments in most of developing countries. Exports were also affected by the drop of commodities prices. Internal economic disruptions, caused by exports slowing down, have led some countries into the beginning of social crisis – which increased the political risk associated to economic activities and therefore made investors more cautious. George Friedman notes that China’s economic decline coupled with the effects of the aftermath of the economic crisis, which both influenced commodities pricing, have created a shift of the trading system, listing the top 10 victims of the current export crisis and the 5 most vulnerable countries, among which we find Germany on top.
All trade and investment data and information recently released indicates that the global system is changing preferences: non-export dependent, but industrial intensive countries, where commodities exports are not supporting the economic growth are preferred by investors. Technological progress building on the development of a healthy socio-economic environment is more attractive when it comes to foreign direct investment. Room for investment in technology is important – as is social stability. Europe has seen a growth in the FDI flows in 2015. India has also seen a dramatic increase (200%) in foreign direct investment last year – that is explained partly through its emerging market status and partly because it shows to be determined to implement reforms facilitating economic growth. Latin America also seems to grow into a stable destination for investment as more countries in the region focus on implementing structural reforms as well.
Considering this background, it is only obvious why the TPP is said to be complex and the TTIP negotiations are dubbed to be difficult and ambitious. The agreement itself – the paper bearing the signatures doesn’t hold value unless it is executed. For it to be executed, it needs to be accurately actual – and therefore needs to take into account the shifts that the world is currently seeing. The TTIP, which is currently under negotiation, is to implement integrative measures that have the capacity to reform the way the EU works. But it is also facing the complex challenges that the EU faces. The politics of Europe are transmitted to Brussels through various channels, including that of civil society protests. And while the geopolitical shifts may seem obvious and simple, the details on the negotiators table are slowing down the process of reaching that anchoring agreement that will indeed act as the twin of the TPP in balancing the global trade and investment.