TTIP and third countries: The role of trade policy spillovers

Working Paper, NUPI

Some recent analysis of TTIP has predicted a more positive outcome for third countries because it was assumed that that trade barrier reductions in TTIP also benefited third countries in the form of ”trade policy spillovers”. The article examines the conceptual and empirical foundation for such spillovers and concludes that they are real and a potentially important phenomenon, but current estimates related to TTIP are uncertain and need a stronger theoretical and empirical foundation. Spillovers take different forms and vary across sectors and trade policy measures, and they often reach only a subset of countries rather than the whole world. The fear of trade diversion from preferential trade agreements (PTAs) can also create ”domino effects” whereby third countries initiate new agreements. Some trade policy spillovers can be expected from TTIP, but ”domino effects” are likely more important than the global diffusion of standards. The main reason is that regulatory differences between the EU and the USA limit the scope for harmonization of standards in TTIP.