30 May 2015

The consumer’s guide to TTIP


The current Transatlantic Trade and Investment Partnership (TTIP) negotiated between the EU and the US has generated a cacophony of negative opinions. It is clear the debate on TTIP has been both hijacked, and polarised by opposing political allegiances. Just this month Obama faced dissent from his own party in trying to fast-track a deal, with concerns from Democrats that it will cost American jobs and hurt US businesses. As well as being protectionist, this entire hullabaloo neglects one very important question: What would TTIP do for consumers?

This is a tricky proposition, given that a) the negotiations are on going and secret. And b) they involve Europe as a bloc, confusing the cost/benefit analysis. What may be good deal for one country, could be only a modest gain for another. Yet, from a consumer standpoint there are components of the TTIP that could potentially shift the argument in its favour and translate to substantial savings for everyone.

The concept of one market and the free movement of goods is the fundamental priority of any FTA and this is currently the case within the EU single market. Any company can import branded goods from another EU country for sale in the UK, even without the manufacturer’s agreement.

Yet importing from outside the EU requires the manufacturers permission. In addition, manufacturers can also control the price at which goods are sold by a third party. This seems a somewhat dictatorial state of affairs as illustrated most succinctly by the, Levi’s vs. Tesco case in 2001. Tesco took the initiative to bypass the Levi UK supply chains and import Levi’s stock from America directly. The incentive to do so was driven by the discrepancy between what Levi was charging for a basic pair of 501 denims in the U.S. (currently $68) and in the UK (currently £70), a mark up of nearly 35%. The mark up was so great that Tesco could bulk buy in the US at retail prices, ship the goods over to the UK, and still pass on a saving to UK consumers and undercut the recommended retail price. As you can imagine Levi Strauss & Co. did not like this, not one bit.

A European Court ruled in favour of Levi’s (in accordance with EU trade law as it stands), and consequently we are all paying more for our denims. In the end the consumer lost out. And to avoid scapegoating one company, here is an entire list of American based, consumer goods that we pay far too much for here in the UK and in some cases it is actually cheaper to get on a flight to America, and purchase them stateside.

TTIP prices

Source: Daily Mail

American consumers also pay too much. As a simple binary comparison, here is a standard Prada handbag selling for €1,980 and the very same bag in dollars for $2,890. Given at the time of writing the current exchange rate between the Dollar is worth just slightly less than the Euro, this is a highly substantial (and difficult to justify) mark up. Of course some will argue that consumers are perfectly obliged to buy another handbag from another company, or ship said handbag to a European address, but why should they have to?

The TTIP has the ability to lower both tariffs and equalise the markets between the two blocs, which would directly benefit consumers on both sides. Essentially, it would be illegal for a company to charge one consumer in one country more (after allowing for currency fluctuations) as that would be differentiating based on nationality or region, a concept that does not exist in FTAs. The markets (the great equalising force that they are) would step in if some companies still insisted on ripping off consumers. It would be a simple case of another company stepping in (as Tesco tried to) and importing and selling at a lower price, forcing down prices for everyone.

Recent debates have focused on increasing the minimum wage, especially in London, in order to put more money in people’s pockets. Yet some of these advocates are protesting against a trade agreement that will potentially do the same thing. It is hypocritical in the least, and nonsensical at best.

Many of the arguments against TTIP are constructed on false pretences that stringent European trading standards will be bypassed by exploitative American companies. Newsflash: many of the goods we own/eat are made by American companies (most of them outside of America), and they are not trying to kill us. They simply want our custom.

Europe is lagging in growth, and badly in need of a boost to trade. The TTIP is a trade agreement designed to make trade easier and more beneficial. It is estimated that the TTIP deal would increase the size of the EU economy around €120 billion (or 0.5% of GDP) and the US by €95 billion (or 0.4% of GDP). That’s a hard figure to ignore.

Let’s cut through the politics and have a sensible rational debate about the areas of the TTIP that would help us all. Price increases are either the result of tariffs placed on foreign goods by governments, or by companies simply exploiting demand. It would be in the best interest of all to unite and maintain a continuous pressure on the government to make sure the TTIP addresses both these problems.

Murad Khan is a Post-Graduate (MSc Politics of China) from The School of Oriental and African Studies (SOAS) and independent business owner.