December 2, 2013
Each year, the University of Virginia’s Miller Center hosts the Caplin Conference on the World Economy, which assembles scholars, experts, government officials, and leaders in business and finance to examine the impact of US economic policy at home and abroad. The 2013 Caplin Conference, held on December 2 at the National Press Club in Washington, examined the prospective free trade agreement between the United States and European Union, the Transatlantic Trade and Investment Partnership (TTIP). Central to the Miller Center’s mission is bringing the lessons of history to bear for today’s policy challenges. Garrett Workman and Jordan Smith of the Atlantic Council were asked to write an original background essay that places the conference subject in proper historical context. This paper provides the historical lens that informed the conference’s deliberations by providing insight to questions like: “Why now?” and “Why is TTIP necessary?”

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Historically, the US and EU have been indispensable allies steering the amalgamation of the global economy. Following World War II, the transatlantic partners oversaw the formation of numerous institutions intended to stabilize the international economic order. From the International Monetary Fund and the World Bank, to the Organization for Economic Cooperation and Development (OECD) and the WTO, these institutions were successful for many years in reducing barriers to trade; promoting economic and financial stability; and providing development assistance. However, as those institutions were designed for a different era, they have recently struggled to adapt to the changes and address the challenges brought on by globalization, primarily the increased importance of capital flows and investment, the role of the private sector in development, increasing competition for energy supplies, and risks posed by large and growing financial imbalances.

Where institutional responses have fallen short, Europe and the United States sought to address these deficiencies with the development of an integrated transatlantic marketplace. TTIP demonstrates a departure from previous American and European proposals for a transatlantic free trade area, as TTIP is not primarily about lowering tariffs between the US and EU—most of which are already low. Instead, American and European negotiators recognize that the bulk of potential economic gains—up to 80%—would come from the elimination of contradictory standards, greater regulatory alignment, and increased access to services and government procurement markets.

The need for ambitious trade agreement was made more evident following the 2008 financial and Eurozone crises. Both sides of the Atlantic have acknowledged the necessity to revitalize their stagnant economies and create jobs, and a deep and more integrated relationship between the EU and US offers considerable potential benefits to consumers and companies alike: goods will be cheaper and firms will be able to invest their capital more efficiently and effectively once tariffs are removed and regulations are streamlined. Beyond pure economics, TTIP represents a timely strategic opportunity for the EU and US to come together as they face the rise of emerging markets that typically subscribe to a different economic model—one focused on the role of state-owned enterprises and government-directed investment decisions.

This could be the last best chance for the transatlantic partners to demonstrate the effectiveness of an open, rules-based economic model with strong protections for workers, the environment, and intellectual property. Failure to come to an agreement would have significant consequences, especially given the level of political capital invested in this project at the highest levels of both European and American government.

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