The Transatlantic Trade and Investment Partnership (TTIP) would be an unprecedented bi-lateral trade agreement between the USA and the European Union. Its goal is to create jobs and growth by reducing the trade barriers. This agreement is being negotiated since 2013 and the negotiators expect to conclude their negotiations in 2016. The TTIP will greatly impact the automobile industry in Europe and in the U.S. According to the European commission, the benefits for this industry are expected to be considerable (Transatlantic Trade and Investment Partnership – The Regulation Part, 2016). Germany is the biggest automobile market in Europe in terms of production and sales. That is why, we can wonder: To what extent the TTIP could impact the automobile industry in Germany? We will discuss about this question throughout this essay.
In 1886, the German designer Karl Benz invented the first automobile in the world. 130 years later, Germany is the most innovative automobile’s hub in the world. It is the biggest automobile exporter in the world by far. In 2014, Germany exported 22,9% of global car exports which represents US$160.1 billion (World's Top Exports, 2016). The German economy benefits from their worldwide recognized well-known in the automobile industry. The label “Made in Germany” means quality, reliability, innovation and safety. Germany has some of the most famous car brands like Volkswagen and BMW Group but the global suppliers as well with Bosch, Continental…This industry is economically essential for Germany but also socially; it is the biggest employer in the country. In 2014, this sector employed one in seven jobs which represents 775,000 employees in Germany (The Automobile Industry in Germany, 2015). When the diesel emissions scandal about Volkswagen brought to light, the Chancellor Angela Markel defended the German car manufacturer and declared: “It [this scandal] put thousands and thousands of European jobs at risk” (Reuters, 2015). It shows how important is this industry for Germany.
Germany is the third largest exporter in the world (Bundesregierung, 2015). The German prosperity depends considerably on exports, especially in the automobile industry. Volkswagen is selling around 70% of its vehicles abroad. The U.S. is a key trade partner for Germany in terms of exportations. In 2014, the U.S was the most important export country for German car manufacturers. They exported automobiles in the U.S. for a value of 27.0 billion whereas the U.S. companies exported automobiles in Germany for a value of only 4.9 billion (see appendix 1). The number of German cars exported in the U.S. increased by 20% between 2004 and 2014. Therefore, Germany runs an extremely large trade surplus in the automobile trade. This suggests that German car manufacturers should be especially interested by the elimination of the tariff and non-tariff barriers between the U.S. and the E.U. German car companies had to pay around 1 billion in tariff for their trade with the U.S each year. To limit these tariffs and other barriers, German company outsourced their production (+230%) in the U.S. during the same period (Iwkoeln.de, 2015). The TTIP would be a fantastic opportunity for Germany to remain one of the largest exporter in the world and also maintain jobs in Germany.
International free trade agreements are growth drivers for the automobile industry.
They can deliver considerable economic benefits to the countries involved. It allows producers to sell the exact same product in different countries. Germany already signed some agreements with several countries for the automobile industry. Most of these agreements had a positive impact on the German market (see appendix 2). In 2011, the E.U. signed a free trade agreement with South Korea. This agreement boosted a lot the exportations of German automobiles in South Korea. The exports in South Korea grew by 20 % thanks to this agreement (see appendix 2).
The TTIP would increase the competitiveness of German manufacturers thanks to the removal of tariff and non tariff barriers. Tariffs between the U.S. and E.U. are relatively low in the automobile industry but their removal could still represent an economy of 1 billion each year for German manufacturers. However, the harmonization of regulations could result to huge cost reductions. Robert Zoellick, former head of the world bank, said: “Regulatory issues are way more important” than tariffs (Spiegel, 2013). The TTIP would be extremely promising for efficiency gains and cost savings. A study from the Peterson Institute for International Economics declared that the elimination of regulatory barriers could boost automobile trade by 20 % which represents over $20billion (Acea.be, 2015).
The U.S. and the E.U. have different standards which means that a car manufactured for Europe cannot be sold in America. German manufacturers need to adapt their safety standard and their environmental protection for the U.S. market. For example, the seatbelt is compulsory in Europe but it is not in all American states (BBC, 2015). European manufacturers have to redesign and re develop their products to sell them in the U.S. The regulations are very high in both E.U. and U.S. but they have different requirements. Despite divergences in standards and procedures, these regulatory regimes deliver the same outcome and lead to the same safety for customers and environment protection. Therefore, this convergence of regulations will allow manufacturers to offer the same safety to customers for lower costs. This harmonization would enable manufacturers to make scale huge economies since they would be able to sell the same car in Europe and in America. It would enable them to save time and use this money usefully such as investments in innovative technologies in order to remain an innovative hub in the international scene.
The TTIP would create a new transatlantic market. Both German customers and companies would benefit from this free trade agreement. First, the TTIP would enable German manufacturers to expand their access to US Automobile Market thanks to the removal of regulations. The European Automobile market is not growing whereas the U.S. market is huge and climbing these recent years. In 2015, the U.S. market represented 17.5 million vehicles sold which is an increase of 42% between 2010 and 2015 (Business Insider, 2016). German automobile manufacturers already export in the U.S but this market is dominated by the American and Japan companies (Business Insider, 2016). Volkswagen has only 3.6% of the market share and BMW Group has 2,4%. (Statistic, 2016). The potential of growth for German automobile manufacturers in this market is huge but it is currently difficult to compete for them because of the trade barriers. For instance, American customers think Volkswagen cars cost too much and therefore they prefer to buy Toyota and Ford cars (Business Insider, 2016). Without trade barriers, German companies will be able to decrease their costs and sell cheaper cars for the same value. The TTIP would help them to improve their competitiveness in the U.S. market and therefore compete better with big players and gain market shares.
Second, this harmonization of regulations would increase the competition in the German market. U.S. car manufacturers would have a better access to the market. It could lead to the creation of more innovative and better cars for customers. They could get more value for their money. Moreover, U.S. companies could propose lower prices for customers thanks to the elimination of trade barriers. It can force German companies to address their prices in order to compete with them. German could be able to save some money thanks to the TTIP.
This agreement would also create jobs in Germany. According to the Bertelsmann Foundation, the TTIP would have an important direct and indirect impact on jobs. It would create around 85,000 new jobs in the automobile industry in Germany but also in some sectors which are indirectly involved in the exports like the service sector. Indeed, it could create 75,000 new jobs in this industry, especially in the repair services and automobile trade (Atlantic Community, 2016). Thus, the TTIP could boost the workforce in Germany and ensure the prosperity of this sector.
Medium-sized companies would be greatly impacted by this agreement too. They represent 85% of the auto suppliers in Germany (Multinational Enterprises, Markets and Institutional Diversity, 2014). The TTIP would give them a better access to the U.S. market for the Small and Medium German firms. The costs of entry are currently too high for them; they cannot afford to pay tariffs and duplicate their products with the U.S. regulations. With this harmonization of regulations and the removal of tariffs, they would be able to compete in the U.S. market. It could strengthen their position and give them an international reputation with access to more markets.
The TTIP would be considered as the biggest free trade agreement in the world. The U.S. and the E.U. are two of the most important actors in the international scene. This agreement would be a step forward to create an international free trade agreement in the automobile industry. The regulations are converging in the automobile industry with more and more free trade agreement. An international free trade agreement by the World Trade Organization (WTO) could possibly emerge in the following years. The TTIP would have strict regulations and it could be used as a template for this international agreement. In this case, German companies won’t have to make big changes in their procedures and standards. They would be already prepared and can take this at their advantage.
The TTIP represents a great opportunity to have a sustainable growth in the German automobile industry but this agreement has also some risks. The automobile sector had always been important in the German economy. The German manufacturers had already been weakened in the U.S. market with the Volkswagen scandal in 2015. The U.S. Justice Department sued Volkswagen for their violation of U.S. environmental laws. The U.S. authorities demand up to $46 billion for this prejudice (Reuters, 2016). This scandal gave a really bad press to the German reputation. It will be really bad for Germany if the negotiators do not conclude an ambitious agreement. They need to decrease the tariff barriers but the most important part is the removal of non-tariff barriers. If this removal does not happen, the benefits from this agreement will not be as good as expected. In this case, German manufacturers won’t be able to have a decent competitiveness in the U.S. and it can put their market shares at risk.
Big German corporations are all proponents for this historical trade agreement but we cannot say the same for small and medium-sized German companies. They do not think they will benefit from this agreement. They could benefit from the removal of tariffs and regulations to expand their business in the U.S. but it could also put their business at risk.
A study conducted by the Commerzbank showed that only 15 % of small companies think the TTIP would be a good agreement for their business. This agreement is negotiated with the help of 50 big corporations but small and medium-sized businesses cannot make their voice heard (Business Insider, 2015). They represent 89% of German’s exporters but the German government does not give them some support (Business Insider, 2015). The big corporations would be more powerful with this new transatlantic market but it would obligate small companies to compete with more firms. Some small and medium-sized companies could have to stop their business if they do not manage to compete with the U.S. companies in this new market.