EU-US Trade Talks Advance, Amid Charged Election Climate

28 May 2014

The fifth round of negotiations for a bilateral US-EU trade and investment pact wrapped up on Friday, after a week of meetings held in the city of Arlington, Virginia. With officials reporting continued progress in their discussions – with some negotiating areas working off of consolidated texts – trade observers have also been watching closely the election dynamics on both sides of the Atlantic to see how these might affect the talks’ success overall.

The Trans-Atlantic Trade and Investment Partnership, or TTIP, has been under formal negotiation for nearly a year. The talks, while aiming to slash tariffs between the two sides, are also meant to harmonise regulations and standards where possible, which analysts say would be the biggest source of gains from an EU-US pact.

The proposed deal has been touted by its supporters as an opportunity for both sides to shore up their economies, particularly as they work to cement a hard-won recovery from the global financial crisis. The ongoing crisis in Ukraine – and resulting cooling in both the US’ and EU’s relations with Russia – have further been highlighted as reasons for Washington and Brussels to deeper their diplomatic and economic ties.

Moreover, they say, a bilateral pact of this scale could serve to spur global trade rule-making elsewhere, including at the WTO, where multilateral negotiations have largely struggled to move forward – while allowing the US and the EU to be at the forefront of these advances.

“It’s been a very good week,” US chief negotiator Dan Mullaney told reporters on Friday, a sentiment that was echoed by Ignacio Garcia Bercero, his EU counterpart.

“Our negotiations have worked hard and we are making steady progress, and we expect to continue to make strong progress in the months to come,” Mullaney added.

Market access

Last week’s discussions addressed all three areas of market access, negotiators said – namely tariffs, services, and government procurement.

Initial tariff offers were exchanged in February, ahead of the political stocktaking held by the two sides’ top trade officials – US Trade Representative Michael Froman and European Trade Commissioner Karel De Gucht.

At the time, EU officials criticised the US offer as lacking in sufficient ambition, urging them to go further in future submissions. US negotiators, for their part, have said that full tariff elimination does indeed continue to be their overall goal.

The two sides are now working toward submitting second tariff offers, officials said on Friday, without committing to a formal timeline of when these would be exchanged. Tariff discussions last week were primarily of a technical nature, they explained, with the goal of clarifying some elements of each sides’ existing offers.

Regarding government procurement, discussions were characterised as very intensive, with negotiators looking both into the potential rules for the chapter on this topic, as well as what elements might feature in an upcoming exchange of offers.

Text-based discussions

At least four of the negotiating areas within TTIP are now at the level of consolidated text-based discussions, officials said on Friday. These four areas are technical barriers to trade, competition, state-to-state dispute settlement, and small and medium enterprises, they said.

Negotiators might also be ready to have text-based discussions on sustainable development, labour, and the environment in time for the next TTIP round in July, given the level of last week’s talks in these areas.

Proposed agreement wording is being discussed in many other TTIP areas, Mullaney said, with text-based discussions hoped-for in the near future. Despite these recent advances, he acknowledged that the road ahead in this area is likely to be difficult.

“We do have our work cut out for us,” the US official said on Friday. “The genuinely ambitious and comprehensive agreement we seek will require a lot of creativity and will require a lot of persistence.”

No size fits all

Officials from both sides have sought to dispel concerns from some civil society groups that the TTIP talks could lead to watered-down regulations, with negotiators reiterating last week that any trade deal cannot in any way compromise the levels of public protection inherent in US and EU domestic legislation.

The two sides are looking into cross-cutting disciplines that would increase input into the processes currently used to establish regulations and standards, officials said. The goal would be to make regulations more compatible, while ensuring their high quality.

The solutions needed in this area would depend on the sector, officials noted, with Garcia Bercero commenting that “in the context of this discussion, no size fits all.”

Energy, financial services

The topic of energy trade – and the possibility of possibly having a separate energy chapter within the TTIP agreement – also came up during last week’s talks, officials said.

The talks to date on energy and raw materials have focused on questions on whether this separate chapter would be needed to address specific energy-related issues, or if these might instead be reflected in the various other parts of the TTIP text.

“It is well known that from the European Union point of view it will be a very important achievement of these negotiations,” Garcia Bercero said, acknowledging that both sides have yet to find a common understanding on whether to have a dedicated energy chapter.

“It’s an issue of global significance,” the EU negotiator added. “It’s not just purely an issue between us and the United States, but we have always also seen this agreement as being an opportunity to send and project our principles and our values in a more global manner.”

Whether to include financial services in the trade talks also remains unresolved. The EU has been pushing for financial services to be featured in TTIP, on the grounds that establishing a framework for regulatory cooperation is key to ensuring that the rules of both trading partners can work together, thus helping prevent future financial crises.

The US, for its part, has maintained that these issues may be better addressed in other international forums, where they are already being discussed. Following last week’s talks, Mullaney said that the US’ position remains unchanged in this area, while noting that these bilateral discussions continue.

“On financial services regulation, it is well known that our position is different to that of the United States,” Garcia Bercero said on the EU’s behalf, adding that the trans-Atlantic pact could serve as a useful opportunity for establishing a stronger framework for cooperation among financial services regulators.

“We believe that this can be done in a manner which in no way would weaken the financial services protections that we are all extremely attached to, the independence of the regulators, or interfering with the work that is being done along with – we also cooperate in the G-20,” he added.

European Parliament shake-up

This weekend’s European Parliament elections yielded a massive shift in the balance of the EU legislative body. With all 751 seats up for vote, the final tally saw over a quarter of the seats go to “anti-establishment” parties, in a result that has prompted many to fear what this could mean for TTIP’s eventual ratification, should the negotiations yield a final deal.

The rise of right-leaning parties in the 28-country EU had been watched closely in the run-up to the Parliamentary elections, as Euro-scepticism has grown across the continent in the wake of the slow economic recovery, growing fears of deflation, and persistently high unemployment levels in some member states.

One of the main focuses of these Euro-sceptic groups is the proposed EU-US pact. Marine Le Pen, who is the president of France’s far-right National Front group – which made major gains after the 22-25 May polls, capturing 24 of the country’s 74 seats in the European Parliament – has been one of the most vocal opponents of TTIP, and has suggested that she will work with similar-minded parties from other member states to stymie the talks.

Questions regarding TTIP have also come from left-leaning parties regarding what impact the proposed pact could have in areas such as environmental protections, with Le Pen suggesting that these parties may join up with right-leaning groups to block the pact.

“Take the transatlantic trade deal: parts of the left are against it, the Eurosceptics are against it – it will be very tight,” she told Reuters ahead of the election. “Will (the European Commission) risk seeing a project as important as that being rejected, or will they put it on the back-burner?”

EU leaders, meanwhile, have been working arduously to build support among the bloc for the trade deal, and to dissuade some of the current concerns, particularly in the charged election climate.

“Every time we’ve negotiated these pacts, standards of environmental and consumer protection have been enhanced, that’s why they are good for us,” German Chancellor Angela Merkel told a Hamburg audience last week at a campaign rally, just ahead of this past weekend’s polls.

Speaking to the European Affairs Committee of the Bundesrat – the legislative and administrative body that represents German federal states – last Thursday, De Gucht similarly attempted to discourage any potential misconceptions about TTIP’s aims.

“I simply cannot accept that some critics describe international investment protection as a ‘coup d’Etat’, ‘Sondergerichte’ or anything of the kind,” he said, referring to the ongoing controversy over whether to include investor-state dispute settlement (ISDS) in the pact.

The EU trade chief reaffirmed earlier comments made by his US counterpart this month regarding ISDS, noting that the two sides already have a similar understanding regarding how to balance the need to protect investors from arbitrary state actions with the need to preserve each sides’ ability to impose regulations that are in the public interest. (See Bridges Weekly, 8 May 2014)

“We therefore have nothing to fear from investment protection in TTIP,” De Gucht said. “Quite the contrary, it is our chance to set a model for future agreements all around the world.”

US mid-terms approaching

Across the Atlantic, the US is also gearing up for its own congressional “mid-term” elections. Every two years, the entire House of Representatives, along with one-third of the Senate, goes up for re-election, with the 2014 polls set for November.

The merits of large trade deals, such as TTIP or the 12-country Trans-Pacific Partnership talks, have come under scrutiny during this election year, as lawmakers consider whether to renew the controversial “fast track” legislation, known formally as Trade Promotion Authority (TPA).

Trade Promotion Authority allows the US executive branch to negotiate international trade deals and then submit them to lawmakers for a straight up-and-down vote, without any amendments – essentially preventing these pacts from being unravelled on arrival in Congress.

The legislation also outlines the US’ negotiating priorities in trade pacts. It expired in 2007, and was last used in ratifying Washington’s deals with Colombia, Panama, and South Korea in 2011. While new legislation was introduced earlier this year to reinstate TPA, the initiative has struggled to make headway in Congress, in light of the mixed opinions among US lawmakers over the actual gains of these trade deals.

Meanwhile, both EU and US officials have suggested lately that they hope to finish their trade and investment negotiations by late 2015, before the preparations for the US’ presidential elections in 2016 get into full swing and complicate the political climate further.

ICTSD reporting; “Polarised Parliament seen thwarting EU’s free trade agenda,” EURACTIV, 15 May 2014; “Merkel Spars With Hamburg Hecklers to Defend U.S.-EU Trade Pact,” BLOOMBERG, 17 May 2014; “Populist gains to complicate Europe’s free trade ambitions,” REUTERS, 13 May 2014; “Anti-EU parties storm European elections,” FINANCIAL TIMES, 26 May 2014.

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