international analysis and commentary

TTIP: four rounds and still a long way to go

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Compared to the stocktaking exercise held in February, little progress seems to have come out of the fourth round of TTIP negotiations held in Brussels on March 10-14. This stall reflects a number of political and economic concerns related to TTIP, as well as the complexity of the issues at hand.

The TTIP negotiations revolve around three pillars: market access, regulations and trade rules. The market access discussions focus on trade in services, procurement rules and, especially, tariffs and quotas on manufacturing and agricultural goods between the two blocks. These are already low but further reductions are expected, such as in the case of selected agricultural goods. TTIP should also tackle the current “buy American” rule for US procurement, which effectively closes this market to all non-US firms. The second pillar deals with behind-the-border regulations, or all legal norms which protect citizens’ health, safety and security but which limit competition and entry in the market. The third pillar focuses on further trade rules, as for instance customs and trade facilitation, provisions for state-owned enterprises, for energy and raw materials trade, and for trade in specialized food protected under the EU “geographical indication”. Discussions on data privacy have been explicitly ruled out in response to the rising concern from many stakeholders in the EU.

The first two rounds of negotiations served as a sort of reciprocal exploration of the areas and scope of divergence between the EU and the US. The third round, instead, began to tackle the core of the contentious questions, and was followed by an exchange of offers on tariff cuts between the two negotiating teams. The fourth round did not yield further concrete achievements beyond that, except for a joint publication on the benefits of TTIP for SMEs.

In the press conference held at the end of the round it was reported that “good progress” was made on market access, and that “the ground was prepared” for proposals in phytosanitary regulations as well as regulations in some specific sectors of the economy. Finally the discussions approached the subjects of energy trade and trade facilitation. Although there has never been an explicit timetable for TTIP negotiations, nor pre-committed detailed objectives for its final document, the initial ambition of signing a deal by the autumn of 2014 has been abandoned.

This follows changes in the political climate on both sides of the Atlantic as important elections will be held in 2014 (in May for the EU Parliament, in November for part of the US Congress), and free trade agreements are generally unpopular. The new European Parliament is expected to reflect rising populism in Europe, an important part of which, both from the Left and the Right, looks at globalization with hostility. Meanwhile, Democratic voters in the US are afraid that new trade deals imply further firm closures and higher unemployment. While the EU Commission has the mandate to negotiate trade deals independently, the EU Parliament (as well as the European Council) will vote to approve or reject the final treaty. It will also have to vote a new Commission in office, perhaps with a different trade commissioner.

In the US, the current administration has requested “trade promotion authority” from Congress. This would guarantee autonomy in negotiations for the administration (although with regular consultations with Congress), and an in-or-out vote of the final deal without amendments. The last “fast track” authority was approved by Congress in 2002 by a handful of votes, in a moment when President George W. Bush was quite popular. With the Democrats struggling to keep a hold of the Senate and with limited chances to gain the House of Representatives, the bill is meeting strong resistance.

Some aspects of the negotiations are more controversial than others with key stakeholders. Much criticism has been raised against the Investor-to-State Dispute Settlement (ISDS) mechanism, for instance. This mechanism allows foreign companies to sue a country before an international court, if the companies believe they have been subject to unfair treatment by the country’s laws (without the ISDS, these issues are handled at the State-State level or in domestic courts). Forty-one current US bilateral investment treaties, nine of which with EU countries, contain ISDS mechanisms; the EU Member States have already implemented 1,400 bilateral investment agreements with ISDS in the last 60 years. Besides offering an extra layer of protection to foreign investors, TTIP would offer the opportunity to set an international standard for ISDS.

Critics, however, point out how ISDS may weaken rule of law in countries accepting it. According to one estimate from the Cato Institute, more than 400 similar suits were filed between 2003 and 2012, compared to 100 cases between 1959 and 2002, a staggering increase. ISDS may be discriminatory against domestic firms, which are not granted access to this extra-judiciary forum for dispute settlement.

Further strong controversies have focused on environmental, health and safety regulations. For these non-tariff barriers to trade, negotiators are trying to agree on a regulatory framework applicable to all sectors, i.e. a “horizontal” set of procedural requirements (impact assessments, early warnings, public consultations, etc.) which would apply whenever trade and international investment are involved. More specific provisions are expected for certain sectors where current regulations are not too far apart (car manufacturing, cosmetics, pharmaceuticals, medical devices).

Liberalization through such regulatory cooperation should yield the bulk of the economic gains from TTIP and become the cornerstone of future trade agreements worldwide. On the other hand, stakeholders, especially in Europe, fear that regulatory “cooperation” or “convergence” under TTIP will translate into a lowering of standards in these fields (especially in the EU), despite the numerous reassurances issued by negotiators. Well-known examples are GMOs, hormone-fed beef, and chlorine-washed chicken.

In reality, such opposition underestimates the fact that “cooperation” and “convergence” do not necessarily mean harmonization, nor mutual recognition of each other’s standards. They can also imply cooperation in implementation of rules such as inspections, evaluations, and analysis of products, and therefore some (although more limited) gains from trade. Yet, strong objections remain.

Finally, the most relevant threat to regulatory cooperation comes from its own “technical” complexity. It requires bringing domestic regulatory authorities to the table, which usually operate independently of trade, and have never cooperated internationally. The probability of reaching no deal or an insignificant one is high.

In sum, the list of current concerns is long and new ones are surfacing, such as: how will extra-TTIP countries react to the creation of “golden regulatory standards” under TTIP? What will be the impact of increasingly asymmetric energy prices across the Atlantic on the economic desirability of the free trade area? What measures should be implemented to moderate the distributional consequences of TTIP on both people and companies? The path leading to an actual agreement, it appears, is still long.