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TTIP – when free trade goes wrong?

Röpke, International Economic Disintegration

In 1942, Wilhelm Röpke’s International Economic Disintegration was published. An international order of liberal free trade collapsed through nationalism, protectionism and monetary destruction. Many other factors were at work. The various events occupying the forefront of public attention were “only surface symptoms of a deep-set structural change affecting our economic, social, political and cultural system in its entirety”. The social sciences were in crisis and found themselves in a new situation. Monopoly and state intervention had led to the degeneration of competitive capitalism. What had gone before was unhampered trade. What came after was widespread acceptance of state intervention in business life.

Globalisation in the sense of international trade is by no means a new phenomenon: the internationalisation of business regulations is and it has consequences. On 4 December 2012, I reported a problem with the EU regulation of biocidal products which was hammering two UK businesses whose products fight legionella by ionisation. Over a year later, the problem still rattles on with special interests apparently capturing the regulatory apparatus to the detriment of smaller, more effective firms. The financial risks to our stretched hospitals are considerable.

It’s just one example of how the regulatory state fails: how it makes us poorer, discourages innovation and entrenches special interests. It takes power out of the hands of the elected and hands it to technocrats: technocrats who tend to continue down their chosen path irrespective of the futile cries of those of us who represent the victims of bad rules.

The situation is dire enough at European Union level but now here comes the Transatlantic Trade and Investment Partnership:

The Transatlantic Trade and Investment Partnership (TTIP) is a trade agreement that is presently being negotiated between the European Union and the United States.

It aims at removing trade barriers in a wide range of economic sectors to make it easier to buy and sell goods and services between the EU and the US.

On top of cutting tariffs across all sectors, the EU and the US want to tackle barriers behind the customs border – such as differences in technical regulations, standards and approval procedures. These often cost unnecessary time and money for companies who want to sell their products on both markets. For example, when a car is approved as safe in the EU, it has to undergo a new approval procedure in the US even though the safety standards are similar.

The TTIP negotiations will also look at opening both markets for services, investment, and public procurement. They could also shape global rules on trade.

Big firms such as car manufacturers tell me they love it. And why not? One set of rules is in their commercial interests. One set of officials is easier to lobby than several. It’s possible to argue enthusiastically for TTIP and state-directed trade policy, as the EU demonstrates:

But this is not free trade. This is not merely the abolition of tariffs. It is the elevation of the principle of all-encompassing networks of regulation to ever more international and less accountable levels. Woe betide the company which falls foul of a rule agreed by the EU and the US Federal Government: your representatives will have no vote and their correspondence in protest will be just so much chaff in the email storm.

I’m no scholar of Röpke but it seems at least one thing about his analysis was correct: competitive capitalism degenerated into a dangerous interventionism and a crisis of the social sciences which has brought us to our current predicament. Once again, the events which occupy the public consciousness are mere symptoms of much deeper issues: the belief that political power on an ever greater scale is required to shape our lives.

At the Cobden Centre, we believe liberal free trade is much more important to international social progress than political power. We’ve concentrated on the state’s incompetence in monetary matters so far. It seems over the months and years ahead, as more bad ideas work themselves out in public policy, there will be ever more to say on free trade. We hope you will help us.

5 comments to TTIP – when free trade goes wrong?

  • Paul Marks

    If it is conceded that free trade needs international regulations (worst of all world regulation – as in “the international community”, “global cooperation”, “world governance”) it will be a nightmare – a total nightmare.

    Government regulations (i.e. threat of violence)is the opposite of free trade. And international “harmonisation” of regulation makes it vastly worse (by removing the possibility of “exit”). An example is the “Basel” regulation of banks (which goes back many year) – it did nothing to prevent credit bubble finance, indeed it encouraged it (as did the interventionism of domestic governments and their creatures – such as the Federal Reserve and Bank of England).

  • Right, if it needs regulation it is not Free Trade. Like American football, the rules determine the outcome. It was disconcerting to read about Chile and Hong Kong signing a free trade agreement. Chile changed some rules, Hong Kong changed nothing, Hong Kong already unilaterally had free trade with Chile, for some 200 years. But celebrate the agreement they did, if only in complement to Chilean politicians’ weltanshauung.

    All advances in free trade can be made unilaterally. Once offered, everyone else begins the race to the bottom, free trade. It is why the powers that be forbid free trade, especially among the crony-capitalists.

  • Yes,I have to point out repeatedly that ‘free trade agreement’ is a contradi ction in terms.

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