international analysis and commentary

Prospects for TTIP in 2015: a view from the United States

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While the midterm election of 2014 has mercifully reached its conclusion, its impact on complex issues like TTIP will take many months to unravel. One unambiguous benefit is simply that the election is over and both the President and lawmakers will have less apprehension about toxic reactions from opponents of trade liberalization than before the ballot. Because Republicans now have solid control of Congress, and the electorate appears to have signaled a desire for more constructive work between the two parties, there is further incentive to find ways to cooperate on issues such as TTIP where some common ground is possible.

Another factor on the positive side of the election ledger is that Republicans are generally more favorable to free trade initiatives, and especially toward TTIP which is seen as having less likelihood of unequal benefits or lowering of high standards. The US business community, one of the historical pillars of support for the GOP, continues to push for completion of this agreement as a means of spurring economic growth and establishing global standards for the 21st century trading and economic development system. For his part, President Barack Obama has enhanced incentive, at least in the view of most observers, to find ways to work with the newly ascendant Republican majority in a positive way to help the economy, which is still, according to polling data, the most important issue of concern to voters. And having a bipartisan achievement that helps the economy and cements ties with traditional allies in Europe would be a feather in the cap of a President concerned about his place in history.

Despite the apparent tailwinds for TTIP emerging at the close of 2014, there remains considerable uncertainty regarding how much political capital President Obama will devote to this agreement. A major commitment on his part will be needed to bring along enough Democrats in Congress to pass trade promotion authority (TPA) granting the President the needed flexibility to negotiate an agreement without fear of rewriting by Congress. Outgoing Senate Majority Leader Harry Reid blocked any and all votes on TPA, and many of his fellow Democrats are reluctant supporters of trade liberalization.

The President, on his Asian trip for an Asia-Pacific economic summit, made a strong push for progress on the Trans-Pacific Partnership (TPP) free trade negotiation which of course pre-dates the TTIP by several years.  Now that China is pushing for a broader Asian free trade area (called FTAAP) in which it would be a dominant player, TPP is considered an even higher priority to assert US leadership in Asia. Adding to the impetus to privilege TPP at the possible expense of TTIP is growing sentiment in the US business community that stagnation in the European economy may persist and consequently US efforts will be better spent in pursuing trade liberalization in faster-growing Asia. There are nonetheless reasons to be skeptical that TPP will be completed in the next year because of Japanese resistance to concessions in the politically sensitive auto and agricultural sectors. 

Another possible, and seemingly unrelated, problem that might derail cooperation between the President and Congress is the purely domestic issue of immigration reform. The President’s first post-election news conference signaled a willingness to work on trade matters with the new Congress (with a positive but not enthusiastic response from congressional Republican leadership). But he also stated quite clearly that he intended to issue an executive order to accomplish some liberalization of immigration standards and regularize the status of undocumented immigrants. This is a hotly disputed issue on substance and especially on procedure. The new congressional leadership would react strongly to such executive action in large part because of their long-standing Constitutional argument that such reform requires a change in the law and thus congressional action. Such a confrontation would likely affect their willingness to grant TPA, since the Constitution also reserves a specific role, jealously guarded in the last two centuries, for congressional responsibility on trade and tariff actions. So TPA could get bogged down in a larger dispute over division of power between the first two branches of government.

Hopefully, neither the immigration dispute nor the possible priority granted to TPP will derail support for TTIP. We will know before the Christmas break the disposition of these two possibilities. But even if they are resolved in ways not detrimental to TTIP, it will be only then that negotiators can start the hard work of solving the many thorny and long-standing differences on the substance of the agreement and that the new Congress can consider TPA without interference from extraneous matters.

One sectoral issue that many thought would provide a boost to the negotiation is trade in energy products such as crude oil and natural gas. Given the geopolitical developments in the Ukraine, the Mideast, and the remarkable burst of growth in energy production in the United States, a freer flow of raw petroleum goods and refined products could potentially be a compelling reason for industry and foreign policy support for TTIP. But in the United States some new energy development is now being ramped back due to low prices, possibly reducing pressure to open exports. Additionally, some products, such as natural gas liquids and condensates, are already breaking the long-standing ban on oil exports. In any case, US energy producers have been reluctant to rely on the time-consuming TTIP negotiations to achieve their goals of boosting exports. Market participants want to move faster than negotiators, and some recent developments seem to support this strategy.

The hard work of resolving tough issues such as government procurement, financial services, various agriculture issues, regulatory convergence, data movement and privacy, and investor state dispute resolution remains even if TPA can be achieved. The window for completing the negotiation with any hope of passage likely closes early in 2016, when presidential politics begin to dominate the landscape. Recent polling data indicate that the broad American electorate is lukewarm at best toward trade agreements, and the courage of members of Congress begins to wither as elections draw near. Clear and persistent leadership can overcome these obstacles, but more focus and urgency on both sides of the Atlantic than we have witnessed since early 2013 will be needed to accomplish this.