Concerns over globalization are crystalizing in many developed economies in the form of opposition to trade agreements. One of the largest, the Trans-Atlantic Trade and Investment Partnership (TTIP) between the European Union and the United States, is currently in the firing line. Many commentators have now declared the entire exercise dead-on-arrival. Such a dismissal is perhaps too hasty.
In spite of strong headwinds, trade officials have continued to press ahead, hoping to lock in as much progress as possible in 2016. As an earlier blog post noted, TTIP is perhaps the most difficult trade agreement attempted. Given relatively open levels of trade between the two parties, both sides are attempting to address thorny sensitive issues that have not been previously tackled and to try to sort out tough new areas of conflicting standards and regulations.
Last week, EU negotiators were in Germany consulting with politicians, NGOs and companies about TTIP progress. Conscious of the frequent charges of secrecy that have been made against trade agreements, the EU has made a lot of efforts to liaise with more groups, especially on TTIP. They updated stakeholders on the three key negotiating areas – market access, regulation and rules.
Progress Report
EU officials reported agreement on 90% of agricultural and industrial tariff lines, though still not on the most contentious agricultural goods, and vehicles have not even been discussed.
Disagreement still remains over rules of origin for textiles, which is a sensitive issue for the US. This stems in part from different textile industries in the two blocs. While European firms now make specialised textiles, such as airplane body coverings and car seats, the US is still producing sports and leisure wear domestically.
The US has reportedly made few concessions on government procurement. Presently American States may determine whether to allow foreign firms to tender for contracts, with federal contracts generally more open. The slow progress is, perhaps, unsurprising with 12 impending gubernatorial elections in two weeks time.
On services the two blocs have agreed on a mixture approaches – negative list for national treatment, and a positive list for market access. What is contentious is the use of short-term business visas (mode 4 services) – this will certainly depend on the outcome of the US election, with US Presidential candidate Donald Trump saying he wants to limit H-1B visas.
There has been some movement on regulation. The auto and IT sector talks are advancing, but there has been little progress on chemicals, electrical engineering and machinery. Part of this is explained by the relative competitiveness of these industries across both blocs, but it is more to do with the way standards are set from sector to sector. Some have very different regulation methods which is why some sectors will find it easier to progress than others. Unsurprisingly, food and food safety (SPS) and Geographic Indicators (GIs) talks are still stuck, as the US and EU have diametrically opposed views on these.
Why the US election is not necessarily bad for negotiations
David O’Sullivan, EU ambassador to the United States, has said that no date is set for further TTIP negotiations, and there may not be any more before the end of US President Obama’s administration in January 2017. Despite approaching the Democrat and Republican campaigns, he said their attention is elsewhere: "I don't think either campaign is really focused on these issues until one of them wins."
But in spite of US Presidential elections where trade has played a big role, the negotiators plan to continue right up to January 1st, to close off as many brackets and chapters as possible. Time is of the essence for US Trade Representative Michael Froman and others to leave a legacy. They are political appointees whose terms may end with a new president.
It is not unusual in the US for administrations to conclude deals started by predecessor. NAFTA was started by George HW Bush and signed by Bill Clinton. Initial TPP discussions were started by George W Bush and signed by Barak Obama. It remains to be seen who will be the President when (or if) TTIP is ratified.
After the election, the US approach may change significantly or barely at all. Market access interests will remain the same, as the lobby interests won’t change. If Clinton wins the emphasis on environment and investment may change. The EU has no room to manoeuvre on the newly controversial investor/state dispute settlement provision (ISDS) politically, and Clinton may consider moving toward an ISDS model more like the one in the Canada-EU deal (CETA). Of course if Donald Trump wins and enacts half of the trade polices he has talked up on the campaign trail, all bets are off.
Why TTIP is so hard for the EU
Despite all the instability in the US, TTIP is even harder for the EU for four reasons.
First, this is a three level negotiation for the EU. It has the EU/US relationship, the EU/Member States and Member states/citizens. These different negotiating parties have different ranges of agreement, and if any of the 28 member states does not support the offer, the agreement is void. Wallonia, a small region in Belgium, last week voted against ratifying CETA (see our companion post today for more details).
Second, Europeans are paying attention to TTIP, whereas Americans are focussed on TPP and the elections. Google Trends shows this differential attention—as a proportion of who is making web searches for TTIP, Austrians area asking for information 50 times more than Americans.* This high level of European scrutiny makes negotiations more difficult.
Third, Europe has Brexit to contend with. The third largest member leaving the EU bloc will divert negotiating resources, weaken its hand and increase political and economic uncertainty.
And finally, there are different negotiating approaches. The US tends to use gambit offers, whereas the EU claims to lay out its ‘final’ offer and see how much the other party accepts. The Americans argue that if they were to use such an approach, pressure groups would keep them stuck in one place and unable to negotiate.
It seems we are far from the end game and TTIP will not be signed anytime soon. But more is happening behind the scenes than many realise, giving hope to the world’s two largest consumer markets reaching agreement at some point in the future.
***This Talking Trade blog was written by Jack Coleman, Research Fellow, Asian Trade Centre, Singapore***
*Values are calculated on a scale from 0 to 100, where 100 is the location with the most popularity as a fraction of total searches in that location, a value of 50 indicates a location which is half as popular, and a value of 0 indicates a location where the term was less than 1% as popular as the peak.