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Food and agriculture should not dictate Italy’s transatlantic trade agenda

by Umberto Marengo

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In 2013, the European Union and the United States launched negotiations for a comprehensive trade agreement (the Transatlantic Trade and Investment Partnership, TTIP).

Italy is at the forefront of this initiative and the Institute for International Affairs invited policy makers and economists from across the Atlantic today to Rome for an international conference to discuss the geopolitical and economic challenges ahead.

TTIP's objective is to facilitate market access for goods and services across the Atlantic by cutting tariffs and trade restrictions (like the Buy American Act), harmonizing regulatory standards, and setting common trade rules, including on custom policies and protected geographical indications.

The agreement is negotiated in a difficult situation. Europe's weight in the global economy is declining, whereas the US has recovered from the crisis and is striking a parallel deal with the ASEAN countries in the Far East.

Europe's economic prosperity depends on trade more than that any other region’s in the world. International trade (import and export) accounts for 87% of EU GDP (against 30% in the US, and 50% in China). But what TTIP is about is the future, not the present. This is the last opportunity for the EU and the US to set the production, environmental, investor and consumer standards for the global economy.

At the G20 Summit in Brisbane, the Italian Prime Minister Matteo Renzi pressed for an ambitious deal to be reached within 18 months. Italy is a competitive export-oriented economy and its stakes could not be higher: the US are Italy's first non-European commercial partner. Italy exports over €27 billion per year to the US (a rising trend) and imports about €11 billion.

Over the last few months, the public debate in Italy has put great emphasis on the possible impacts of TTIP on agriculture and food. As much as these sectors are important, they account only for a fraction of transatlantic trade. Agriculture and food together make 3% of Italy's value added exported to the US. Mechanical equipment, machineries, transport, business and financial services are the true bulk of transatlantic trade.

Export of Italian value added embodied in US demand

Share of value added exported to the USA by sector (Source: OECD TiVA Database)

It is in Italy's strategic interest to keep political attention high also on the manufacturing, mechanical, and transportation sectors, where the country holds a global competitive advantage. More trade would boost growth and employment.

Timing is Europe's greatest enemy. The negotiations with the US have struggled to take off also due to some underlying hostility in public opinion. Thanks to the Italian Presidency of the EU Council in 2014, the EU has made an unprecedented effort to make the negotiation as accessible and transparent as possible. Yet, the nitty-gritty of the bargain cannot, and should not, be dealt in public during the negotiations.

If a deal will not be reached before the next US presidential election in 2016, TTIP will most likely become an empty shell and Europe's bargaining power on the global stage will suffer an historic blow. The United States are currently closing another deal with the ASEAN countries in the Far East (the Trans Pacific Partnership). This will make it even more difficult for the EU to protect its interests vis-à-vis the United States and the emerging Asian economies.

Europeans take pride in their economic and social model in every corner of the world. Now it is the time to protect and extend it for real. Reaching an ambitious agreement with the US is a precondition to be able to engage in a position of strength with the emerging countries, which is to say with the future the world economy.

The author is researcher in EU public policy at the University of Cambridge and management consultant at The European House - Ambrosetti