23 February 2016

TTIP - The Race Against the Clock

TTIP - The Race Against the Clock
Timing


This week negotiators arrive in Brussels to continue discussions on the Transatlantic Trade and Investment Partnership – one of the largest trade deals ever negotiated, between two markets that account for half of the world’s GDP, and traded goods and services between the two worth around €2 billion every day.


However, with the original 2014 deadline to conclude an agreement now long-gone and with the upcoming political calendar, negotiators are up against it to reach a comprehensive agreement that satisfies the demands of stakeholders on both sides of the Atlantic, and one that would receive support from the European Parliament (and EU Member State Parliaments) and Congress.


During the last negotiation round in October 2015, negotiators lauded the ‘substantial progress’ that was made, especially on tariffs, and at the end of 2015, European Commissioner for Trade, Cecilia Malmström, and her US counterpart, Michael Froman, met in Brussels to emphasise their commitment to reaching an ambitious TTIP, and to intensify efforts this year. Most recently, Commissioner Malmström said that negotiators must be ‘approaching the endgame’ by the summer, with further negotiation rounds confirmed in April and July. The real question is if the parties will be able to close a deal by the end of this year.


On the American side, the 2016 elections and the process of trade deals probably pushes a possible vote into 2017. On the European side, 2016 and 2017 faces deep uncertainty due to the UK referendum on its membership of the EU and French and German elections (both taking place in 2017). The next European Parliament elections take place in 2019, as does the appointment of a new European Commission.


Trade under discussion in both the EU and the US


Behind the scenes, areas such as energy, financial services and geographical indications seem to be sticking points in negotiations, as well as the controversial investor-to-state dispute settlement or ‘ISDS’ that has attracted criticism from citizens across the EU. Hostility against not only ISDS, but TTIP as a whole, has been an ever-present factor during negotiations. Currently, over 3 million people have signed a petition against TTIP, and a demonstration in October 2015 in Berlin attracted around 250,000 people. In response to criticisms against ISDS, the European Commission proposed its new ‘Investment Court System’, which was endorsed by Members of the European Parliament (who will vote on the deal once it is concluded) in their recommendations to European negotiators on the deal, issued in July 2015. Negotiators are due to discuss the new system this week, however, early signs suggest that they are in for difficult discussions, with stakeholders in the US already criticising the proposals.


Although TTIP has been at the forefront of trade discussions in the EU, on the US side discussions have mostly revolved around the recently agreed Trans-Pacific Partnership (between the US and Asia-Pacific countries), formally signed in early February 2016. During the US presidential debates, Bernie Sanders has been vocal critic of President Obama’s trade agenda and Hillary Clinton announced that she would make tweaks to the TPP, but does not support it as it is currently written as it does not meet her ‘high standards’. On the Republican side, Ted Cruz has said that he would vote against the TPP as it stands, Donald Trump has been a vocal critic of the agreement, and Marco Rubio has been silent on the issue (however, his opinions on international trade and silence most probably points towards approval of the deal). These opinions, however, are taken on what has been said during primary season, and the concrete positions of candidates would not become apparent until the presidential election campaign itself (or until the new president takes office). While it would be legally possible for Congress to approve TPP in June or July of 2016, it is likely to only come up for a vote, at the earliest, after the November election but before either the new President or new Congress take office.


Away from TPP, of the leading candidates in both parties, only Republican Senator Marco Rubio supported Trade Promotion Authority, which gives the President formal authority to negotiate a trade deal, including both TPP and TTIP. However, observers believe that Clinton would follow in the footsteps of Obama – and her husband Bill Clinton, who shepherded through the North American Free Trade Agreement that had been negotiated by George H. W. Bush, his predecessor – when it comes to international trade. From there, uncertainty rises, although it would certainly be possible that Ted Cruz would support a trade deal.


The larger risk for any trade deal in the US could be the changing political environment within both parties, as it is ultimately Congress that must approve any trade deal, and they are always close votes. Historically, the Republican Party has been pro-trade, while the Democratic Party, backed by labour unions, has been split. Populist challenges from Bernie Sanders and Donald Trump are changing this dynamic in both parties in ways that could make it harder for Members of Congress to vote for any trade deal. This only reinforces the need to reach an agreement on TTIP this year.


Process


If an agreement is reached in 2016, which is desired by negotiators, then we still would not see an agreement come into place until 2019 or even 2020. The legal scrubbing phase and the translation of the agreement into all official EU languages, a process which can take up to a year, would have to take place before the Council can give its decision, and before it can be voted on in the European Parliament’s international trade committee (and then the whole European Parliament). Once it passes these two stages, it then has to be voted on by each EU Member State parliament (in the case that it is a mixed agreement).


On the US side, there is an extensive review process in the US that is determined by Trade Promotion Authority, whereby the President can negotiate international trade agreements that Congress can approve or reject, but not amend agreements.


TPP’s text was released right after the October 2015 election in Canada, but Congress cannot vote on it until June or July of 2016. A TTIP agreement will face a similar 6-8 month time period during which American interest groups will dissect the agreement. On the political side, there is only speculation about where candidates will land if they were to be in office.


Time is of the essence to reach an agreement, especially as anti-TTIP campaigners are growing in numbers. If the current trend continues, then public discontent with TTIP will continue to increase, as the ‘no TTIP’ campaign is not being counterbalanced by EU institutions, Member States or political leadership, especially if negotiations are prolonged and pushed into 2017 and beyond. If the agreement does reach the stage of approval in the EU, and ratification in EU Member States, the influence of the anti-TTIP camp may be too strong, and politicians will come under increasing pressure from their constituents on how they vote on the agreement. This trend has already been observed during negotiations, as the ICS system was proposed by the European Commission due to fears from citizens regarding the old ISDS, further confirmed with the European Parliament recommending to replace ISDS with ICS.


A number of stakeholders are, however, optimistic that an agreement can be reached in 2016. If this is to be the case, then the 12th negotiation round this week will be a key moment, as the outcomes of the discussions will be an important basis for progress to be made this year.


However, rushing to get an agreement in 2016 may have negative consequences, with negotiators having long-said that they want to avoid reaching a ‘TTIP-light’ that covers little more than tariff cuts (which would be difficult to sell to the European Parliament and to Congress). For industries and stakeholders that are pushing for TTIP to be concluded ASAP, a longer timeframe would allow for more time to provide more input in the discussions of specific chapters, allowing for a better and more comprehensive deal.  However, at the same, the longer it takes, the bigger the opposition could grow (highlighted above).


The need to reach an agreement


A study released in January 2016 on the economic impact of TTIP on EU Member States, by the World Trade Institute, estimated that the agreement would lead to permanent increases in exports for all 28 EU Member States. Lithuania, Austria, Belgium and Ireland would stand to gain the most, and the EU as a whole would see economic gains (annually) of €119 bn. The US, meanwhile, is estimated to gain $104 billion annually.


Aside from the economic benefits, tackling non-tariff barriers would make trading easier for small and medium sized enterprises on both sides of the Atlantic and would boost SME internationalisation.


However, if these benefits are to be seen, it will be important for the business community, especially small and medium sized enterprises, to speak up on the benefits of TTIP – to both citizens and stakeholders alike. A final consideration is that each month without the implementation of TTIP represents millions of Euros lost, in terms of import duties that European companies still have to pay to export their products & services to the US market (and vice-versa).


It is clear that TTIP is far from being done and dusted. This week’s negotiation round will be an important basis for talks this year, however, the political timeline will make it difficult for an agreement to be in force in the near future.


Soren Dayton is a senior vice president in H+K’s Washington, DC office and has worked in Republican presidential, Senate, and U.S. House campaigns.
Daniel Hart is an Account Executive in H+K’s Brussels office, working on EU public affairs.

Related contacts :

Daniel Hart
Account Executive, EU Public Affairs

email: daniel.hart@hkstrategies.com