15 February 2013
New Agenda for Europe and the USA
President Obama’s State of the Union address this year created front page headlines on both sides of the Atlantic. While the US media focused on his plans for shoring up a fragile economy, headlines in Europe trumpeted the President’s ambition of completing a Transatlantic Trade and Investment Partnership (TTIP) agreement between the US and EU – a ‘game-changer’ as the European Commission President termed it.
What are the prospects for completing this TTIP in two years? Can the EU and US put aside their differences to form an agreement allowing for the free movement of goods and services across the Atlantic? We asked Hill+Knowlton Strategies’ global co-heads of Public Affairs, Joe Eyer and Thomas Tindemans, for their perspectives.
Practically all economic sectors will be affected. The start of the process reveals an ambitious political will on both sides to address trade obstacles and to harvest the expected economic benefits, but the negotiations will be technical in nature, with many difficulties expected. And then at the end of the negotiations, if a comprehensive deal is reached, the issue becomes highly political again, with the US Congress and the European Parliament having to ratify the new Treaty – and elected representatives are potential targets of interest groups that may agree or not with the outcome.
The greatest difficulty to reach agreement is the fact that the negotiations are really about changing each other’s laws and regulations in contested areas. That is never easy. Huge amounts of money are at stake, since the US and the EU are by far the biggest trading and investing partners in the world. But the start of the negotiations is expected to raise confidence in markets and the prospect of an agreement may already lead to investment decisions. If agreement is reached, then import tariffs on a whole range of products and services will come down, reducing the cost of trade immediately. Regulatory convergence will facilitate exchange considerably – either through mutual recognition of regulation or through harmonized common rules.
The agenda of the negotiations is structured along the architecture of the trade agreement envisaged at the outcome. Different chapters will be tackled separately. On trade in goods, most attention will go to effective tariff reductions where applicable, to establishing industry standards covering a wide range of products and to applying the same rules of origin of products. Mutual recognition of existing standards, for example for cars, or electronic appliances, or of safety and hygiene rules, will be at the heart of the debate. Textiles constitute another favorite subject for negotiators, because that discussion covers many aspects of trade policy, such as rules of origin, tariffs, agricultural aspects and consumers’ interest.
In the chapter on trade in services, some of the most controversial topics appear. These include e-commerce, investment protection, financial services, data protection and privacy.
Opening up government procurement to allow suppliers to bid for contracts in both markets, promises to be a tough nut to crack as well, since it implies abolishing or amending the “Buy American Act”. Think about government purchases of aircrafts, public transportation equipment, ICT, etc.
In addition, a whole range of measures protecting consumers, public health or the environment, will be screened on their protectionist impact. No doubt, many NGOs will identify causes for battle in this area – they were often at the origin of the measures in place and they can mobilize their supporters. The leading theme here will be to guarantee “equivalent” protection in the US and the EU, while not necessarily applying identical measures. Think for example about cooling off periods for electronic purchases. Or products approved by the FDA but not (yet) by the European Food Safety Agency.
Intellectual property protection and enforcement remains a domain of controversy, especially after the withdrawal of the SOPA/PIPA proposals in the US and the rejection of the ACTA Treaty on IP enforcement by the European Parliament. Respect for copyright and preventing illegal downloading, extension of patent protection periods, genuine remedies for trade secret misappropriations, are all themes that promise heated debate.
As is always the case with trade agreement talks, the most difficult items will determine the final outcome. Agriculture offers plenty of opportunity to scupper the deal. Conflicting legislation and no mutual recognition have resulted in fundamentally different approaches in the US and the EU of GMOs, hormones in beef, chicken bleaching, mad cows etc. Agricultural lobbies remain very powerful in Brussels and Washington.
Lastly, on free movement of people, the extension of the US visa waiver program to all Schengen countries and the disagreement around visa requirements for intra-company transfers of individuals should be solved. An important difficulty here lies in what to do with third country nationals, for example the Indian IT engineer transferred from France to San Francisco.
Companies and industry associations on both sides of the pond have been engaged in lobbying and communication activities in the run up to the opening of the trade talks. Now that the real issues will be tackled, these activities are likely to increase considerably – both on specific technical aspects affecting businesses and on the political level when national interests are at stake. NGOs will be very active. In parallel, third countries may take an interest in commenting on the talks should they perceive an impact on their competitive situation. Throughout the process there will be a high demand from stakeholders for information about progress made. No question that there is a need for extensive communication to the public by those interested in the deal in order to foster ultimate support for the outcome.
US Congressional leaders believe they can draft and ratify a comprehensive trade agreement with the European Union by January 2015. With his State of the Union announcement, President Obama cleared the way for US trade officials to initiate a dialogue that experts say could be worth nearly $5 trillion. Expect this to be a central talking point in President Obama’s economic agenda over the next 18 months.
There are at least four reasons thoughtful observers of public policy should approach the idea of a TTIP with healthy skepticism.
First, the ‘fast track” negotiating authority (also called Trade Promotion Authority) which in the past has given Presidents authority to negotiate international agreements that Congress can then approve or disapprove - but cannot amend - is a thing of the past. That authority expired in July 2007. The chances of the Republican House majority granting this President fast track authority on the eve of the 2014 mid-term election is minimal. The lack of fast track authority simply makes this process more difficult.
Second is the role an emboldened organized labor will play in a second Obama Administration. Organized labor was central to Barack Obama’s reelection. The labor community cares about job creation, immigration reform, the minimum wage and international trade policies that protect workers and the environment. Labor and environmentalists combined forces in 1993 and nearly derailed the North American Free Trade Agreement (NAFTA). The 27 countries that make up the EU are greener and more union friendly than almost any on the globe. Labor unions and environmentalists will have a meaningful say on the US side of this negotiation. While it won’t be like 1993, expect both important constituencies to maximize their leverage and seriously impact these negotiations.
The third challenge is the illusive alignment of international regulations. In order to make this partnership a reality the EU and the US will need to come to terms on a variety of regulations/standards in a range of economic sectors. While the regulatory regimes in technology and manufacturing might be comparable, the approaches toward agriculture practices and standards face significant barriers. Reaching agreement on international standards and regulations is going to be a tremendous hurdle.
Finally and perhaps most importantly is the issue of jobs. President Obama believes this FTA is central to his strategy to create hundreds of thousands of good paying American jobs over the next five years. Critics of NAFTA contend that free trade agreement (FTA) resulted in the loss or displacement of more than 700,000 jobs. As the AFL-CIO contends, “The three trade agreements the US entered with Korea, Colombia and Panama are based on the same flawed trade model that has sent jobs overseas, suppressed wages and provided the benefits of trade to a narrow class of wealthy investors.” It is a fair bet that the success or failure of this FTA will come down to which side wins the jobs argument.
The encouraging news is that bipartisan support exists - initially - in the US Congress. The leaders of each of the committees of jurisdiction have heralded the President’s announcement and pledged to work with the White House on swift passage of the TTIP. The Senate Finance Committee and the House of Representatives Ways and Means Committee have jurisdiction over trade in Congress, giving lawmakers on those panels an important role in deciding US negotiating objectives.