Politicians negotiating international trade deals love their abbreviations. The world of global trade is a vast bowl of alphabet soup _ WTO, Nafta, Apec _ and now we have TTIP and TPP: the Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership, as they are known officially.
The transatlantic and transpacific trade deals have huge potential implications for the global economy. Multilateral free trade _ the sort of thing the World Trade Organisation negotiates _ has faded from the agenda amid disagreements and recrimination, largely over agricultural policy. Hopes for a less restrictive global trading environment now rest with these new trade deals.
For Asia, the transpacific deal is pretty important. Singapore, Brunei, Australia and Japan are all involved in the negotiations, and South Korea has been invited to participate. The deal matters almost as much for those not participating as for those that are; non-participants will be at a competitive disadvantage compared to those that do participate, should a deal be signed. Negotiations have already undergone 19 rounds, most recently in Brunei in August. Three of the eight most important trading nations in the world are part of the negotiations.
What the transpacific deal is about, mainly, is reducing tariffs. At least, that is the working assumption. The negotiations have been conducted in conditions of considerable secrecy, but tariff reduction seems to be the focus on the basis of leaks and what official communication there is.
This is a good, old-fashioned sort of a trade deal that directly reduces the costs levied on imported products. To lapse (lamentably) into American phraseology, this "levels the playing field" between imports and domestically produced goods.
The transpacific trade deal will mean a better deal for consumers in the countries that sign up. A consumer should have a wider range of goods available at a lower price than is the case today. Trade volumes should increase, again for those that sign up.
However, the transpacific trade deal may turn out to be the less important of the two pacts. Indeed it may turn out to be the less important deal for Asia. This is because the transatlantic negotiations, between the United States and the European Union, envision a new sort of trade deal, with implications that reach beyond its participants.
The transatlantic trade negotiations began in earnest in July this year. The pact would cover 45% of the world economy and 66% of high-income countries. The numbers for the transpacific deal are 31% and 49% respectively. But what really causes the transatlantic trade deal to stand out is the aim of the negotiations.
The transatlantic deal is not about tariffs, at least not for the most part. The US and the European Union do not have too many tariffs between them. The tariffs that do exist are insignificant compared to the fluctuations of bilateral exchange rates. The main aim of the deal is not lower tariffs, but common regulation.
Regulation is costly. Today any company wishing to sell to the US and the EU will have to satisfy two different sets of regulations. It does not matter if the product that comes out of the regulatory process is identical (as indeed it is likely to be), the costs of two regulatory processes must be undertaken.
The proposal under the TTIP is to harmonise regulation, or where that is not possible to create a framework that will help to harmonise future regulation. This will dramatically reduce costs for an exporter _ estimates put cost savings in a range as high as 30% to 70%.
Why does this matter to Asia? Because if Asian companies wish to export to the United States and the European Union (two thirds of the world's high-income economies), Asian companies will have to meet the regulatory standards set by the US/EU agreement, as well as their own domestic standards. There will be a strong incentive for Asian regulators to copy the US/EU regulations, if only to prevent Asian exporters from being at a competitive disadvantage.
In effect, the US and the EU will be setting the global standards for a wide range of goods and services. Those that do not measure up to their criteria are effectively excluded from anything other than local trade. Of course, the US and the EU have an incentive to shape those standards to their own advantage, without considering the needs of others.
The transpacific trade deal, what we know of it, sounds like a nice old-fashioned trade deal _ and it brings benefits. But the impact of the transatlantic trade deal seems potentially more far-reaching. Even for Asia.
Paul Donovan is a deputy head of global economics with UBS Investment Bank.