Capitalising on trade outside Europe
The refugee crisis has demonstrated the threats posed by open borders. However, from a trade perspective, open borders are increasingly important, and one of the EU’s key priorities at the moment should be to tap into growth potential by opening up market opportunities for European businesses abroad.
Barriers to trade often exist in the form of tariffs and trade quotas enforced by a country to help protect local markets and industries. As the economy becomes increasingly global, more and more countries are negotiating free trade agreements, under which these barriers are reduced, helping industries access new markets, boosting their reach and the number of people they can sell their products to.
One such agreement is the Transatlantic Trade and Investment Partnership which has been under negotiation between the EU and the USA since 2013. Industries it would affect include pharmaceuticals, cars, energy, finance, chemicals, clothing and food and drink. The government says that benefits to businesses include:
- better access to the US market, which is 6 times the size of the UK
- improved export opportunities for businesses of all sizes in many sectors
- less red tape means that small businesses stand to gain the most from the deal
- for businesses already exporting it will be easier and more profitable
- knock on benefits for those that supply to exporting businesses
For consumers, more competition between US and EU firms will mean shoppers can expect to see a wider choice of products on sale online and on the high street. The removal of tariffs on American products such as electronics, food and drink, cars, clothing and shoes will mean that some prices will fall.
The government claims TTIP could add £10bn to the UK economy, £80bn to the US and £100bn to the EU every year. However, the TTIP is facing increasing opposition, for various reasons:
Discrepancy in standards: US regulations are far less strict than EU regulations in many areas, for example environmental and food safety standards. 70 per cent of processed foods sold in US supermarkets now contain genetically modified ingredients. By contrast, the EU allows virtually no GM foods. In Europe a company has to prove a substance is safe before it can be used; in the US the opposite is true: any substance can be used until it is proven unsafe. As an example, the EU currently bans 1,200 substances from use in cosmetics; the US just 12.
Many civil society groups believe TTIP will result in downward harmonisation of standards, although assurances have been made by the European Commission that TTIP will keep our high levels of protection on health, safety and the environment.
Jobs: Opponents argue that TTIP will cause unemployment as jobs switch to the US, where labour standards and trade union rights are lower. War on Want predicts that the TTIP will cost at least 600,000 jobs in Europe.
Disputes between investors and the state: A main aim of the TTIP is to introduce Investor-State Dispute Settlements (ISDS), which allows companies to sue governments if those governments’ policies cause a loss of profits.
Opponents argue that the ISDS can deter governments from enacting policies to benefit the environment, for example, in case they trigger an ISDS action from a foreign company. The German government, for example, shut down its nuclear power industry after the Fukushima disaster in Japan in 2011. Due to an ISDS clause in a treaty covering energy investments, Vattenfall, a Swedish utility that operates two nuclear plants in Germany, was able to demand compensation of €3.7bn from the government.
However, the Commission has made explicit assurances that a governments ordinary right to regulate in the public interest will not be affected and according to the CBI, only two ISDS have been brought against the UK – neither succeeded.
With mounting opposition in Britain and elsewhere in Europe to the TTIP, it is still not certain that the agreement will come about at all. However, the TTIP is not the only iron in the fire – negotiations are also underway between the EU and several Asian countries. FTA negotiations with Singapore were finalised in October 2014, and with Vietnam in August 2015. However, there is a delay in these agreements coming into force pending a decision as regards whether it needs to be approved by individual member states. Discussions with Thailand started in March this year, and the EU is apparently open to negotiations with other South East Asian Nations.
Whilst the EU approach can perhaps be described as piecemeal, in October this year the Trans Pacific Partnership was concluded between countries in the Americas (Chile, Peru, Mexico, US and Canada) and countries in the Asia Pacific region (Vietnam, Singapore, Malaysia, Japan, Brunei, Australia and New Zealand). The TPP will form the world’s largest free trade region, its members comprising about 40% of the global economy. Given the headstart that the TPP gives its members, the EU will have to move quickly to make up for lost time in the region.
Over the next ten to 15 years, 90% of world demand will be generated outside Europe, so it is critical that our businesses are able to tap into this demand without being at significant disadvantage. For Britain the question of whether we are going to be in or out of Europe in the future is going to be key. If out, then arguably and somewhat late in the day, we should be looking to create our own trade deals.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
‘Doing the right thing’ is at the heart of Freeths. Find out more about our excellent client service and the strong set of values that guide the way we work.
Talk to us
Freeths are a leading national law firm with 13 offices across the UK. If you have a query about our services or just want to find out more, why not give us a call?
Contact: 03301 001 014