The Transatlantic Trade and Investment Partnership (TTIP): U.S.-EU trade and investment negotiations launched – a long overdue initiative in the developed world

February 15, 2013

On February 13, 2013, the United States and the European Union (U.S. and EU) formally launched a Transatlantic Trade and Investment Partnership (TTIP) negotiation. This negotiation will be comprehensive covering market access; regulatory issues and non-tariff barriers; and rules, principles and architecture for the overall agreement. Since the U.S. and the EU are the two largest economies in the world with similar high standards, these negotiations could yield comprehensive agreements that would set the gold standard for the world of free trade, investment and standards agreements.

The U.S. and the EU have a long intertwined history of trade and investment between them. Indeed, transatlantic investment exceeds $3.7 trillion, and trade in goods and services across the Atlantic are roughly $1 trillion/year ($2.7 billion every day). No one country or group of countries has been more engaged in bilateral and plurilateral trade agreements over the decades than the EU. And historically, major multilateral WTO trade negotiations have required agreement/compromise between the U.S. and the EU to be completed. The result is that most tariffs between the U.S. and EU (MFN rates) of importance have been reduced over the years, with our average tariffs being low, roughly 4% (with some sensitive goods with significantly higher rates). We are both developed economies with generally high food safety, environmental and labor standards.

Despite our relative size, comparable economic development and importance to each other, our differences have to date made pursuit of a transatlantic free trade agreement an unapproachable bilateral goal. Business groups on both sides of the Atlantic and some governments within the EU have been seeking the start of such talks for many years. While governments and business have had a long standing transatlantic dialogue aimed at facilitating the harmonization of regulatory regimes (with very limited success to date), new economic and financial challenges since 2007 have created an opening for major U.S.-EU bilateral negotiations. The limited budgetary options available to both economies and the rise of economic powers like China and India who do not necessarily adhere to the core set of economic and trade principles that have driven U.S.-EU economic growth over the last decades have also fueled the impetus to negotiate.

An Important Week for the U.S. and the EU in Trade

On February 11, 2013, the U.S.-EU High Level Working Group on Jobs and Growth (“HLWG”), established at the November 2011 U.S.-EU Summit, released its final report. The report indicated that the Group “has reached the conclusion that a comprehensive agreement that addresses a broad range of bilateral trade and investment issues, including regulatory issues, and contributes to the development of global rules, would provide the most significant mutual benefit of the various options we have considered. We therefore recommend to Leaders that each side initiate as soon as possible the formal domestic procedures necessary to launch negotiations on a comprehensive trade and investment agreement. http://www.ustr.gov/sites/default/files/02132013%20FINAL%20HLWG%20REPORT.pdf.

The next night, President Obama in his State of the Union Address stated: “tonight, I’m announcing that we will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Union -- because trade that is fair and free across the Atlantic supports millions of good-paying American jobs.”

A joint press release the next day (February 13) from the U.S. and the EU on the decision to launch a transatlantic trade and investment partnership was followed by press conferences in Washington and in Brussels.[1]

The timing of the launch of negotiations will be by this summer and the hoped time line for completion of the negotiations eighteen months – suggesting a possible agreement by the end of 2014 – a very ambitious timeline considering the historically sensitive issues that will be tackled, and one not likely to be met if the scope of the negotiations are to in fact address a wide range of non-tariff barriers as well as the negotiation of rules on emerging issues of importance to the global trading system as is envisioned in the announcement this week.

What Will Be Included in the Negotiations?

The HLWG final report upon which the call for the launch of negotiations is based contains the following objectives:

“Based on our work over the past year, the HLWG considers that negotiations on a comprehensive trade and investment agreement should aim to achieve ambitious outcomes in three broad areas: a) market access; b) regulatory issues and non-tariff barriers; and c) rules, principles, and new modes of cooperation to address shared global trade challenges and opportunities.”

The easiest to achieve of these three areas will be market access, although challenges exist in each area of market access both in the U.S. and in the EU. Thus, ambition and pragmatism will determine how significant the liberalization in market access will be. The hardest area will be regulatory issues and non-tariff barriers as both economies are highly developed and have entrenched defenders of the status quo, even though harmonization in these areas could have the greatest mid-term benefit to both economies. The last area may be the most interesting as agreement amongst nations that account for half of the global economy on new rules becomes a powerful tool in getting movement on these issues in other bilateral and plurilateral settings as well as in the multilateral world of the WTO at some point.

A) Market Access

The HLWG recommendations on market access are provided below. As can be seen, the levels of ambition are reasonably high although in some areas only seeking the codification of the existing most liberal agreement provisions either party has with other trading partners. Agriculture and import-sensitive manufactured goods will present the challenges on tariffs. Each economy has sensitive service sectors (maritime for the U.S.; cultural industries (movies, TV, music) for the EU). Each economy has limitations on access to government procurement (e.g., U.S. “buy America”).

“A transatlantic trade agreement should comprehensively tackle market access obstacles relating to tariffs, services, investment, and procurement. The HLWG recommends that the objective of such an agreement be to achieve a market access package that goes beyond what the United States and the EU have achieved in previous trade agreements.

“Tariffs

“The HLWG recommends that the goal of the agreement should be to eliminate all duties on bilateral trade, with a substantial elimination of tariffs upon entry into force, and a phasing out of all but the most sensitive tariffs in a short time frame. In the course of negotiations, both sides should consider options for the treatment of the most sensitive products.

"Services

“The HLWG recommends that in the services area the goal should be to bind the highest level of liberalization that each side has achieved in trade agreements to date, while seeking to achieve new market access by addressing remaining long-standing market access barriers, recognizing the sensitive nature of certain sectors. Furthermore, we recommend that the agreement include binding commitments to provide transparency, impartiality, and due process with regard to licensing and qualification requirements and procedures, as well as to enhance the regulatory disciplines included in existing U.S. and EU trade agreements.

“Investment

"The HLWG recommends that a comprehensive U.S.-EU trade agreement should include investment liberalization and protection provisions based on the highest levels of liberalization and highest standards of protection that both sides have negotiated to date.

“Procurement

“The HLWG recommends that the goal of negotiations should be to enhance business opportunities through substantially improved access to government procurement opportunities at all levels of government on the basis of national treatment.”

B) Regulatory Issues and Non-Tariff Barriers

When one looks at the challenges of regulatory liberalization, mutual recognition and other aspects of the second area of regulatory issues and non-tariff barriers, the objectives articulated in the HLWG are clear although the ability to achieve reduced costs for goods and service providers much less clear. The report calls for:

-- negotiating “an ambitious ‘SPS-plus’ chapter” to address bilateral sanitary and phytosanitary issues, and

-- “an ambitious ‘TBT-plus’ chapter” for standard setting and conformity assessments, and

-- for evaluating opportunities for harmonization, equivalence or mutual recognition.

Both economies have sought input from the private sector on challenges in this area and proposals to address the same. This will be an ongoing area needing private sector input and focus, and offers by far the largest potential benefits for expanded trade, jobs and growth for the two economies. While the HLWG final report includes provisions for senior level engagement on an ongoing basis to try to keep talks advancing, if there is one area that will present the greatest likelihood of limited success or delay in resolution, it is this area. This means that senior officials will need to maintain their focus on the regulatory issues area more than any other.

C) Rules Addressing Shared Global Trade Challenges and Opportunities

On the third area of negotiations, the U.S. and EU have identified intellectual property rights, environment and labor, and “other globally relevant challenges and opportunities” as areas for negotiation. As the final report states: “Given the size and influence of the transatlantic partnership, the HLWG also supports the aim of developing rules in several areas that would not only be relevant to bilateral commerce, but would also contribute to the progressive strengthening of the multilateral trading system.”

While the focus of IPR will include strong protection and enforcement issues, certainly the EU will be pressing the U.S. on expanded “geographical indications” as it has done in the WTO for at least the last eighteen years.

Both the EU and U.S. are global leaders in food safety, environmental and labor issues. Agreements between them on these topics would facilitate the re-emergence of these topics within the trade environment and possibly help move other nations towards a more harmonized approach.

With the growing importance of emerging countries, different economic systems have presented potential major distortions to the functioning of the multilateral trading system. Some of the issues flagged for potential consideration by the U.S. and EU in the upcoming negotiations include “subsidies and other privileges granted to state-owned enterprises, export restrictions on raw materials, [and] localization requirements.” So the hope is that a U.S.-EU agreement could provide benchmarks for developing countries to meet in these key areas.

There are other areas not presently listed that would seem to be similarly problematic for both the U.S. and/or the EU, including the important issues of currency manipulation/misalignment (China is the most notable country where this has been a long-standing problem, but is not alone) and the challenges faced by countries with lower or no indirect taxes (e.g., U.S.) in trading with countries with large indirect taxes (e.g., EU) and what, if any, modifications should be made in addressing rebates or in assessing such taxes on importation. Hopefully, they can also be addressed to bring greater benefit from the negotiations to the U.S. and greater rationality to the multilateral trading system.

Early Support and Concerns

Not surprisingly, there has been a lot of support for the launch of the negotiations from Senators and Members of Congress as well as business associations on both sides of the Atlantic. This does not mean that agricultural producers of import-sensitive goods or domestic producers of industrial goods and their workers that are import sensitive will not be concerned with tariff phaseouts, the timing and possible exceptions or that industries and workers with strong interests in current Buy America provisions will not be concerned about any reduction in such preferences vis-à-vis the EU or that workers or service providers facing potential loss of employment/work through outsourcing will not raise concerns about service sector negotiations. But the possibility of a broad agreement with the EU offers a much more understandable set of benefits to American companies and workers than agreements with countries with much lower standards of living. An agreement with the EU is potentially very important and does not represent a necessary race to the bottom as agreements with some other countries might be perceived.

See What They’re Saying: the Transatlantic Trade and Investment Partnership, http://www.ustr.gov/about-us/press-office/blog/2013/february/stakeholders-ttip and http://www.ustr.gov/about-us/press-office/blog/2013/february/stakeholders-ttip-2 (Statements from: Senate Finance Committee Chairman and Ranking Member; House Ways and Means Committee Chairman and Ranking Member (full Committee and Trade Subcommittee); U.S. Chamber of Commerce; Securities Industry and Financial Markets Association; National Association of Manufacturers; Business Roundtable’s International Engagement Committee; Society of Chemical Manufacturers and Affiliates; Business Roundtable; United Parcel Service; American Chemistry Council; The TransAtlantic Business Council; Business Europe; Deputy Secretary of Commerce; United States Council for International Business; the National Chicken Council, National Turkey Federation, USA Poultry & Egg Export Council and U.S. Poultry & Egg Association; FedEx; Center for American Progress; National Milk Producers Federation; U.S. Dairy Export Council; Medical Imaging & Technology Alliance; European Coordination Committee of the Radiological, Electromedical and Healthcare IT Industry).

Actions That Companies and Workers Should Be Undertaking to Maximize the Benefit of the Negotiations

For companies and workers that have not been engaged to date, it is time to develop a game plan on what you want, what you can live with, how a changing environment vis-à-vis the EU provides opportunities and how to minimize potential negative consequences from the liberalization if those are likely. Helping the U.S. identify and understand non-tariff barriers and regulatory hurdles that you face in the EU and approaches that would facilitate trade between the U.S. and the EU without harming the health or safety objectives of the NTB or regulatory scheme will be critical in obtaining the maximum benefit for your U.S. operations. Develop your positions early, communicate with the Obama Administration and with your elected officials, generate the support of your workers and your community(ies) and stay engaged.

American trade negotiations, which had been focused in recent years on the Trans Pacific Partnership (“TPP”) negotiations and the struggling Doha Development Agenda, is suddenly facing a very busy period with this huge opportunity/challenge with the EU, the recently initiated international services negotiations among the U.S., EU and 19 other WTO Members, the hoped-for conclusion of the TPP negotiations and the possible 2013 mini-package at the 9th WTO Ministerial Conference in Bali (trade facilitation and possibly a few other issues).

On the EU talks, one can only say, it is about time. The stakes are high, but the results could lead to hundreds of billions of dollars of increased exports and investment with millions of new jobs being created. Given the fact that the U.S. and the EU remain mired in the aftermath of a problematic recession, a U.S.-EU deal could also play a major role in restoring long-term economic growth.



[1] For statements by some of the architects, see, e.g., Statement from United States President Barack Obama, European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso, February 13, 2013, The White House Office of the Press Secretary (http://www.ustr.gov/about-us/press-office/press-releases/2013/february/statement-US-EU-Presidents); Transcript: Briefing by USTR Ambassador Ron Kirk and Deputy National Security Advisor Michael Froman on U.S.-EU Trade Negotiations, February 13, 2013 (http://www.ustr.gov/about-us/press-office/press-releases/2013/february/transcript-briefing-us-eu); Remarks by EU Trade Commissioner Karel De Gucht on the Transatlantic Trade and Investment Partnership (http://europa.eu/rapid/press-release_MEMO-13-96_en.htm).



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