TTIP's Future

The China Triangle

epa03719428 German Chancellor Angela Merkel (R) and China's Prime Minister Li Keqiang (L) take a walk at the German government's Meseberg Palace in Meseberg some 60 km north of Berlin, Germany, 26 May 2013. China's Premier Li Keqiang met German Chancellor Angela Merkel as the close economic partners seek to weather a brewing trade spat between Beijing and the EU and forge deeper ties. EPA/GUIDO BERGMANN / POOL +++(c) dpa - Bildfunk+++
The trade deal is challenging and China may prove important in determining what courts wind up resolving disputes, though it's no walk in the park.
  • Why it matters

    Why it matters

    The United States and Europe are at loggerheads over key elements that could wind up toppling a free-trade deal between the world’s two largest economic blocs. China may hold one of the keys.

  • Facts

    Facts

    • The United States and European Union are hoping to agree a free-trade deal by the end of this year, which would cover about 40 percent of the global economy.
    • One of its most controversial aspects is whether to allow multinational companies to sue governments they believe have violated the deal’s terms.
    • The European Union wants to overhaul the existing “investor-settlement dispute system.” If China backs the E.U. approach, it could force the United States to cave as well.
  • Audio

    Audio

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It’s a make-or break issue for the proposed U.S.-E.U. free-trade deal, and possibly, for the future of global trade.

A competition is underway between the United States and European Union, the world’s two biggest economic blocs, to convince the world that they have the best system to protect investors, governments and consumers in the global market.

The odds are stacked against the 28-nation European Union, which wants to set up a new type of global court to arbitrate disputes between investors and governments.

But the E.U. will first have to convince the rest of the world the current system for settling these types of disagreements, a system that has been part of free trade deals for nearly five decades, is broken.

The E.U.’s argument got a boost earlier this year when Canada agreed to incorporate a new type of permanent investment court into its own free-trade deal with the European Union.

But the dealmaker probably won’t be Canada, but China, the world’s second-largest economy.

As the world’s rising economic power, whatever model China supports could end up prevailing. If China were to express a preference for the E.U. trade court model over the U.S. position — which it hasn’t done so yet — it could tip the outcome of the E.U.-U.S. trade talks, which have stalled on the issue, one expert said.

“It would change the dynamic,” said Gary Hufbauer, a former U.S. trade negotiator with the Washington-based Peterson Institute of International Economics. “Maybe even the Canadian agreement could go some ways in that direction. But China would be a big step.”

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