Mega-Regional Trade Negotiations: Implications for Emerging Atlantic Economies

Mega-Regional Trade Negotiations: Implications for Emerging Atlantic Economies

Giraffe and cloudsIn the mills of global trade negotiations there are two significant Preferential Trade Agreements (PTA’s) that are expected to reshape the global trading system: the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP). The agreements will have a direct impact on party states[1], affecting tariff levels, non-tariff barriers and establishing harmonised rules on trade, but will also resonate throughout the global trading system as party states contribute a significant amount to global trade.

To this effect Peter Draper and Memory Dube conducted a high-level strategic analysis of the effects these agreements will have on Atlantic African and Latin American states. This is the latest in a series of analyses on mega regional trade agreements which previously looked at the impact they could have on the EU, ASEAN and ACP group of countries.

The first thing non-party Atlantic states need to consider is that the agreements will have an impact on market access as trade barriers are liberalized between party states. Non-party states might also see preference erosion, particularly in products that compete directly with liberalized trade amongst the parties. Regardless of how market access is affected, non-party states are likely to experience trade and investment diversion as party states continue to integrate. The extent of trade and investment diversion also hinges on negotiations pertaining to Rules of Origin (RoO) and trade in services, which in turn will have an impact on non-party states’ flow of trade in goods, services and more importantly foreign investment.

The TPP and TTIP negotiations also hold a great opportunity for progress in terms of trade rules and harmonising regulatory standards. Should coherent, uniform standards and requirements emerge, costs pertaining to compliance for third parties could decrease, but there is a risk that these standards will be high enough to constitute a barrier for non-party members, especially LDC’s. Negotiations on rules range from the trade in goods, through intellectual property rights, investment protection, and competition policy. The opportunity for non-party states lies in leveraging current agreements with party states to align these rules for greater participation by non-party states, simplifying processes and reducing costs by having universal, predictable rules.

Atlantic African and Latin American states will need to re-evaluate their positions on the disciplines agreed upon in the mega-regionals to continue attracting investments from party states and enjoy sustained market access; this being said the greatest hurdle for non-party states will be political willingness to reform policies to align with the mega regionals. Consequently, the article investigates existing trade communities in Atlantic Latin American and African countries in light of their historical frame of economic integration. They highlight the divisions among Latin American economies’ attitudes towards global economic integration, especially with the West, and Africa’s major economies, which seem to be leaning increasingly towards inwards-looking trade and industry policies.

Draper and Dube envisage three scenarios based on the outcome of the TPP and TTIP negotiations. The first scenario, full success, envisages a utopian trade agreement with complete liberalization of trade barriers. In this, highly unlikely, scenario non-party states will suffer trade diversion and competitive liberalization will compel them to liberalize their own trade and investment regimes. The second scenario, partial success, takes into consideration the likelihood of trade-offs and concessions expected in trade negotiations, and accepts comprehensive liberalization of tariffs and regulatory compromises as a likely outcome. In this scenario non-party states will have more room and time to adjust their trade strategies and the pressure to negotiate reciprocal trade agreements with developed states will increase marginally. The third scenario, failure, sees a modest agreement on tariff schedules and largely hortatory declarations on achieving future progress. In this scenario the role of global trade leadership will be heavily contested by the US, EU, and China. For non-party states this means pressure to establish reciprocal trade agreements with competing powers will increase. The outcome of these reciprocal agreements will depend on how non-party states play the competing powers against each other, but regardless of the extent of failure in this scenario the WTO will continue to drudge along without further resolve.

The constant in all three scenarios is that non-member states will continue to be pressured to comply with rigorous behind-the-border regulatory norms and to liberalize trade policy. Atlantic Latin American and African states that position themselves to be included in Global Value Chains, via regulatory upgrades and trade and investment policy liberalization, will be better placed to manage the transition.

The full article, as published by the German Marshall Fund of the United States (GMFUS), is available for download here. Another article pertaining specifically to the strategic implications for South Africa is available here.

In this podcast, Guillaume Xavier-Bender of GMFUS interviews Peter Draper about the impact that the Transatlantic Trade and Investment Partnership (TTIP) will have on countries in the South Atlantic.


[1] TPP members: Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States of America and Vietnam.

TTIP members: European Union and the United States of America.

TTIP and EPAs: Geometry of trade and investment relations between the EU and Africa

TTIP and EPAs: Geometry of trade and investment relations between the EU and Africa

Giraffe in city street [News]Andreas Freytag recently had an interview with ECONWATCH explaining the TTIP and its potential as a path to greater prosperity.

For our German readers the original article is available here in German.

The EU is in the midst of strengthening regional integration efforts with the Trans-Atlantic Trade and Investment Partnership (TTIP) taking the foreground. The impact these negotiations will have is not limited to party states and will have an indirect effect on their trading partners and the EU’s attempts to strengthen other regional integration efforts.

European-African relations are directed by the Economic Partnership Agreements (EPAs) between the EU and regional African trading groups, which has been problematic since colonial times. Making integration efforts harder is the reality that within the African trading groups are states at various levels of development. Managing a coherent and regionally uniform agreement has proved difficult as Europe’s preferential trade schemes do not apply equally to both Least Developed Countries (LDC’s) and non-LDC states. An additional hurdle is African attitudes towards further opening their economies, since the prevailing strategy for African states is that of targeted industrial policy and import substitution to avoid competing in the global economy. This also means that Africa will take a step back in participating in Global Value Chains (GVC’s) and potentially miss out on the economic growth presented by GVCs.

Customarily the TTIP is expected to realize trade creation within the parties and cause trade diversion from non-members, however recent research shows that with increasing global division of labour and the spreading of GVCs the effects of trade diversion can be small. It follows that if Africa reacts to the TTIP with the aim to be included in GVCs then TTIP could serve as a stimulus for further economic growth.

For African exporters to truly take advantage of the mega-integration effort mutual recognition of standards within the TTIP would be necessary, meaning that the USA needs to be open to EU standards and vice versa. This unification of standards would mean that suppliers from non-member states could export to the USA on EU standards and to the EU on USA standards, which increases both the size of the African goods market and incentives to comply to standards.

Considering these particulars Africans would need to change their strategy. Mega-regional trade deals will most certainly continue to occur and if Africa insists on keeping its trade borders relatively closed the effects of trade diversion will heavily weigh in on economic development. African governments have the opportunity to react to the TTIP by joining the EPA’s and insisting on open standards in the TTIP.