A close look at the transatlantic trade and investment parternship

#CriticalThinking

Picture of Roderick Abbott
Roderick Abbott

Former Deputy Director-General at WTO and former Deputy Director General in DG Trade at the European Commission

What is the Transatlantic Trade and Investment Partnership (TTIP) all about? The answer is complex. If you listen to what the two parties have declared in public, it is a simple trade agreement but very much enlarged in scope compared to the classical edition of a FTA, and covering a vast amount of two way trade and investment. Yet if you read what others have written, academics and the media, you hear of linkages to the wider global economy, to more strategic issues such as national security and sovereignty, and even to the world of geopolitics. You might think that almost any aspect of the bilateral relationship could be in some way involved in the discussions.

So what are the facts? What really is at stake? Is there an impact on other trade partners beyond the two parties directly engaged – perhaps below the surface like an iceberg?

TTIP was first announced by President Barack Obama in the State of the Union speech in February 2013. In his words, the objective was free and fair trade across the Atlantic which would “support millions of good-paying American jobs” (and presumably that it would lead to higher rates of economic growth in the USA and in Europe). Both sides of the pond seemed to agree on that.

The first negotiating session in July did not reveal much about the substance and was clearly focused on organisational matters and the general architecture of negotiations. What emerged was a classical trade structure: a free trade area between the two largest players in the global trade world, but adapted to the “World Trade Organisation Plus” agenda seen in recent agreements such as the one between the EU and South Korea. Negotiating chapters would be built around three main ‘clusters’ – market access, and regulatory issues and rules (for example in the area of competition) – with a separate focus on investment protection and perhaps investment promotion.

What emerged was a classical trade structure: a free trade area between the two largest players in the global trade world, but adapted to the “World Trade Organisation Plus” agenda seen in recent agreements such as the one between the EU and South Korea

Since then, however, a number of issues that might be considered as out-of-centre in a trade agreement have become more important. Most attention has now been given to regulatory cooperation – a broad mix of behind- the- border of policy areas which are governed by domestic regulations – where both sides show little interest at present in reaching mutually acceptable compromises. American negotiators are aiming to tackle the problems in a horizontal way, with more transparency and participation (code language for the opportunity to influence regulations while they are being drafted), and European negotiators want to focus on more pragmatic issues in defined sectors such as pharmaceuticals and automobiles. Other issues off-the-centre relate to sustainable trade and development, which includes labour rights and environmental issues, and to energy matters which have de facto long been outside international trade rules.

Further, the investment chapter which was intended to provide protection for foreign investments along the lines of the existing provisions in many bilateral investment treaties, has unexpectedly hit the buffers. Labour unions have always opposed such foreign investments, considering that they create jobs offshore and provoke a loss of jobs ‘at home’ and that this has a depressing effect on domestic wage levels. They have been joined by others such as anti-globalisation groups and those that think investment protection in the transatlantic context can be left to the national courts. In addition, a storm of concerns has developed over provisions that would allow investor-state disputes to be dealt with by the use of arbitration mechanisms, a practice that has been widely used over the last twenty years.

So how should we assess the situation almost eight months after the beginning and after four main negotiating sessions?

The first point to make is that we should hear what the parties have said, and we should not forget that DG Trade and USTR are in charge of the talks. The definition of what is now covered by a trade agreement has expanded since the Uruguay Round 1994, and more recently Investment issues have been added to the story – and in negotiation with Korea and Canada. TTIP means what the title says.

It follows from this that, if observers on the outside speculate about other wider non-trade objectives, this is likely to be the law of unintended consequences at work. Some elements in the overall bilateral relationship may be affected, but we should resist going beyond saying that TTIP aims at a free trade area.

There are major priority aims in the energy sector (given Europe’s dependence on Russian gas), and in securing access to raw materials where combined pressure on other countries may be vital

Media reports suggest that many of the lobbies following the talks are representing sector interests on classical lines – urging tariff cuts and removing agricultural barriers such as GMO food and hormone treated beef. The aim will be to eliminate “substantially all” such barriers; but current lobbying misses the greater importance attached (by the EU) to government procurement in opening new market access, as well as the large potential gains to be made in trade in services. There are major priority aims in the energy sector (given Europe’s dependence on Russian gas), and in securing access to raw materials where combined pressure on other countries may be vital.

Among the regulatory cooperation issues, the two sides seem still far apart. Mutual misunderstanding and no equivalence about priorities seems to have taken over from mutual recognition and efforts to achieve greater convergence. This applies to the broad issue of transparency and accountability in the regulation making process, and to the standards setting and converging of widely different regulations in various sectors. Consumer and environmental lobbies have joined forces fearing that efforts to protect the environment, or health and safety standards would be compromised.

Finally, in the investment chapter, serious difficulties have emerged over investment protection in general and over investor-state dispute settlement (ISDS) provisions in particular. On the first some argue that what was necessary in treaties with developing countries is not needed between two actors with mature independent judicial systems; and the unions are resisting any support to foreign direct investment because by definition it creates jobs abroad rather than at home. On ISDS union spokesmen and anti-globalisation groups are linking up to oppose the ‘evil intentions of rich investors’ and play on fears that governments in host countries would be prevented from protecting their environment or employment interests. Could this happen in the EU and the USA?”

So, the TTIP is essentially all about a free trade agreement but of a kind that goes much wider than the models of the 1970s or even of NAFTA. The difference is in the focus on measures ‘behind-the-border’, in the area of domestic regulations; these are at present widely different in the EU and in the USA, resulting in hidden barriers which limit the opportunities to more trade in both directions. The negotiators still have a long way to go before an agreement is reached – probably in 2015 – at the earliest.

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