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Chad Damro on Market Power Europe and the Transatlantic Trade and Investment Partnership

2nd November 2013

Photo (C) European Council

In addition to Senior Lecturer of Politics and International Relations, Chad Damro is Jean Monnet Chair, Head of the Jean Monnet Centre of Excellence and Co-Director of the Europa Institute at the University of Edinburgh. He is a Visiting Professor at the College of Europe, a Fernand Braudel Fellow at the European University Institute and has held visiting posts at numerous universities in Europe and the United States. 

The transatlantic marketplace represents the largest bilateral economic relationship in the world today and remains a significant engine for growth in the global economy. While the stand-alone economic sizes of the European Union (EU) and United States of America (US) are impressive, the sheer size of the joint transatlantic marketplace is staggering. The figures paint a picture of the two largest industrialized markets creating a bilateral economic relationship that dwarfs all others. Beyond the raw economic data, however, the transatlantic marketplace is also a deeply interdependent and institutionalized relationship in which a variety of actors have long contested and contributed to change. The launch of negotiations on a Transatlantic Trade and Investment Partnership (TTIP), which is the most recent signal for change in the economic relationship, has generated considerable attention among policy- and opinion-makers. But scholarly investigations into this new development have lagged behind.

The time is now ripe for academics to investigate the specific dynamics of the TTIP negotiations as well as the most important features of the general bilateral economic relationship. Crucial to explaining these developments in transatlantic relations is the concept of power. Therefore, my recent conceptualization of the EU as a ‘Market Power Europe’ should be able to provide fruitful academic inroads for analyzing and understanding EU-US economic relations as well as generating practical policy lessons.[1] Indeed, with the launch of the TTIP negotiations, the sizable and deeply integrated transatlantic marketplace has initiated talks that move beyond traditional trade liberalization. These comprehensive negotiations include regulatory matters, which is exactly where we should expect to see Market Power Europe exercise its power by externalizing the EU’s internal market-related policies and regulations.

Market Power Europe

I did not specifically develop the conceptualization of the EU as Market Power Europe to explain the dynamics of the extensive transatlantic economic relationship. But if the EU is conceptualized as Market Power Europe, it is important to explore the ways in which this perspective sheds light on the EU’s external relations with its largest economic partner/competitor, the US. In addition, the TTIP negotiations provide an opportunity to explore an under-developed area of the conceptualization. According to Market Power Europe, the EU exercises its power through the externalization of its market-related policies and regulations.[2] This power is felt by all other actors in the international system, although it may have less an effect on other relatively large economic powers. It is, therefore, worthwhile to explore the ways in which the EU exercises its externalization power on another large economic power.

The conceptualization of Market Power Europe does not require analysts to study the EU as a sui generis actor, but it does contribute to the rich debates about what kind of the power the EU is, what it says as a power, and what it does as a power. Because the EU is, at its core, a market, I argued that it may be best to conceive of the EU as a Market Power Europe. Using insights from the comparative and international political economy literatures, it becomes clear that an understanding of the EU as a power needs to focus on the context within which the EU is already often and readily recognized by other actors in the international system—that context being the external dimensions of its internal market-related policies and regulations. The new conceptualization also explicitly incorporates the exercise of power vis-à-vis public and private actors and draws attention to the role of coercion in the EU’s exercise of power.

As Market Power Europe, the EU’s identity, both historically and presently, is crucially linked to its experience with market integration. This experience generates three central and mutually-reinforcing characteristics that inform the EU’s ability to exercise power: market size, institutional features and interest contestation. On the basis of these characteristics, the EU is understood to exercise its power of externalization through various tools—such as the use of positive and negative conditionality, multilateral and bilateral legal instruments, formal and informal networks and internal regulatory measures—in its relations with both states and non-state actors. But to what extent is Market Power Europe able to do so in the transatlantic marketplace?

 Market Power Europe in the Transatlantic Marketplace

In the broader transatlantic marketplace, the three central characteristics are prominent fixtures that help to shape economic relations. For example, due to the balanced size of the EU and US markets, the extensive transatlantic marketplace has become a regularized and institutionalized relationship based on measures to increase dialogue and cooperation among high-level political actors, regulators and business and civil society actors. Of course, there are also occasional high-profile disagreements between the EU and US, such as disputes in the World Trade Organization. However, these disputes are infrequent and often over-blown in the news media.[3] Likewise, while different regulations and approaches to regulation do exist in the bilateral relationship, the goal of increasing dialogue and cooperation is to adjust policies in a manner that overcomes problematic differences in regulatory standards that could lead to disputes in the first place.

Starting from the first characteristic, the size of US market should influence Market Power Europe’s approach to economic relations and the externalization of its internal market-related policies and regulations. In addition, Market Power Europe’s approach should be conditioned by the fact that the EU’s market is deeply integrated with the US market. This deep integration leads to deep interdependence. As a result of such deep interdependence, the EU knows that disagreements can be particularly disruptive to the general transatlantic marketplace and to specific European constituents across sectors. This creates significant pressure for Market Power Europe to pursue cooperative coordination that will reduce the likelihood of disputes arising. It seems likely, therefore, that a combination of market size and deep interdependence tends to shape and determine Market Power Europe’s approach to the US.

If we look at the second characteristic of institutional features, we must remember that Market Power Europe is a regulatory state with high levels of regulatory capacity. This regulatory capacity can be understood as regulatory expertise, regulatory coherence and sanctioning authority.[4] In its relations with the US, Market Power Europe finds itself engaging with another large market that generates a considerable amount of regulation and possesses (at least) broadly equal levels of regulatory capacity. Due to their balanced size and regulatory capacity, these two actors have developed a cooperative framework through which EU member states and institutions manage the relationship and pursue policy adjustments with the US. The cooperative framework is based on a series of important but often overlooked bilateral agreements—Transatlantic Declaration, New Transatlantic Agenda, Transatlantic Economic Partnership, Transatlantic Economic Council, Positive Economic Agenda, Guidelines on Regulatory Cooperation and Transparency, and High-Level Regulatory Cooperation Forum—that have helped to institutionalize and regularize the relationship since the end of the Cold War.

The third characteristic of domestic interest contestation has been rather simplified by the creation of the Transatlantic Business Dialogue and Transatlantic Consumer Dialogue as important contributors to the policy-making and adjustment process. In particular, these dialogues generate policy recommendations to help shape and adjust the transatlantic marketplace in ways that satisfy their respective interests. Given the creation and active roles of these dialogues, it seems clear that Market Power Europe takes into account the positions of business and consumer groups as it determines whether and the extent to which it will attempt to externalize its regulations to the US. The views and priorities of these dialogues may differ dramatically as would be expected in interest contestation. However, their internal deliberations as dialogues generate recommendations behind which their respective members collectively stand. When these recommendations are similar, the two dialogues can be viewed as a pro-externalization coalition that contributes to the likelihood of Market Power Europe attempting to externalize its regulations and engaging in policy adjustment with the US.

A Hard Case for Market Power Europe

While a number of national leaders in the EU had encouraged US President Barack Obama to pursue a trade agreement with Europe, it was following his election to a second term that public commitment to the idea emerged. In his State of the Union Address on 12 February 2013, Obama committed to the launch of talks on a comprehensive trade deal with the EU. The start of talks was officially approved on 14 June when the EU Member States endorsed a negotiating mandate for the European Commission. The first round of TTIP talks then took place in Washington, D.C. from 8-12 July 2013.

Following the recent delays associated with the US Government shut-down, there is now renewed effort dedicated to negotiating the TTIP. But to what extent will we see Market Power Europe externalize its internal market-related policies and regulations in these negotiations? The conceptualization of Market Power Europe should be able to inform such an analysis of the EU’s approach to the negotiations.

The TTIP case is useful because, while this would be the largest trade agreement ever concluded, the EU has included regulatory matters in the negotiations. Because trade negotiations are one of Market Power Europe’s most important tools, this inclusion can be seen as a distinct example of the EU attempting to externalize its internal regulations. This is also a crucial case for Market Power Europe because the US is an equally powerful actor in the area of trade.

Again the three key characteristics of Market Power Europe – market size, institutional features and interest contestation – may help to explain the EU’s attempt to externalize regulations via the TTIP negotiations. According to the first characteristic of market size, MPE attempts to externalize regulations via trade negotiations because it believes the negotiating partner will be compelled to accept the European regulations in exchange for access to the large and lucrative EU market. This factor would need to be tested with descriptive statistics to determine the relative sizes of EU and US markets in general and across the different regulatory sectors to be negotiated in the TTIP. Likewise, qualitative studies of the ongoing negotiations, public positions and the final agreement should provide further evidence of the extent to which the EU tries and was able to leverage its market size to export regulations.

For the second characteristic of institutional features, it may be hypothesized that MPE attempts to externalize regulations via trade negotiations because its high level of regulatory capacity – expertise, coherence and sanctioning authority – increases its expectation that the negotiating partner will accept European regulations. Testing of this characteristic would need to measure the comparative regulatory capacities of the EU and US. The series of six formal EU-US bilateral agreements (mentioned above) that have institutionalised transatlantic regulatory relations over the last two decades would also need to be evaluated for the extent to which they bolster EU regulatory capacity and increase expectations that the US will accept European regulations.

The third characteristic, interest contestation, hypothesizes that the EU’s attempt to externalize was made to satisfy interest groups that favour the externalization of regulations. Preliminary research shows that many of these interest groups have different positions on the EU attempt to externalize regulations via trade negotiations. The positions of over sixty stakeholders across the EU who sought to influence the decision to include regulatory matters can be found in formal submissions made to the European Commission’s public consultation on the TTIP. Minutes from meetings of the EU’s Civil Society Dialogue, which are being made publicly available, would also need to be analysed. Set up as part of the TTIP process, this new Dialogue includes over 150 participants representing non-governmental organizations, industry associations, trade unions and other actors. The extent to which they are mobilizing as a pro-externalization coalition should help to explain Market Power Europe’s approach to regulatory matters in these comprehensive negotiations.

Conclusion

Due to the size of and deep interdependence with the US market, it makes sense for Market Power Europe to adjust its externalization strategies to suit the practical environment. This adjustment tends to lead the EU to pursue externalization via coordination in the transatlantic marketplace. The EU and US have reached a number of bilateral agreements that recognize their balance in size and regulatory capacity and that formalize institutional relations among high-level political and regulatory actors as well as business and civil society actors. Fundamentally, these bilateral agreements create a framework to increase coordination and policy adjustment. Through these institutionalized processes of policy adjustment (which are decidedly not one-way), the EU is able to undertake efforts at externalizing its regulatory standards in the US while remaining open to the possibility of changing its own regulatory standards in ways that conform to US rules. By doing so, Market Power Europe decreases the likelihood of situations arising in which coercive externalization would need to be pursued.

The current testing ground of the TTIP negotiations provides an excellent opportunity in which scholars can further investigate the dynamics of the transatlantic marketplace. While early hopes were that the negotiations may conclude in two to three years, it is difficult to forecast an end date with any certainty. Indeed, future US Government shut-downs and other unforeseen complications, both at and away from the negotiating table, could delay any conclusion. But regardless of the eventual outcome of the negotiations, it seems clear that the conceptualization of Market Power Europe helps provide analytical leverage for understanding and ultimately explaining the EU’s approach to and impact upon the TTIP negotiations. Such insights also point to the most important actors and factors at play in these negotiations, which should help to inform the practical positions taken by TTIP negotiators on both sides of the Atlantic.



[1] Damro, Chad (2012), “Market Power Europe,” Journal of European Public Policy, Special Issue on Best Papers of 2011 EUSA Biennial Conference, 19, 5: 682-699.

[2] Externalization occurs when the institutions and actors of the EU attempt to get other actors to adhere to a level of regulation similar to that in effect in the European single market or to behave in a way that generally satisfies or conforms to the EU’s market-related policies and regulatory measures.

[3] Young, Alasdair (2009), ‘Confounding Conventional Wisdom: Political not Principled Differences in the Transatlantic Regulatory Relationship,’ British Journal of Politics and International Relations 11, 4: 666-689.

[4] Bach, D. and Newman, L. (2007) ‘The European Regulatory State and Global Public Policy: Micro-institutions, Macro-influence’, Journal of European Public Policy 14, 6: 827-846.

 

 

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