May 6, 2016

EU–US Trade Agreement (TTIP): Interim Report

Reuters/Scanpix
Opponents of the Transatlantic Trade and Investment Partnership (TTIP) protest outside the headquarters of the Christian Democratic Union (CDU) in Berlin, Germany, March 14, 2016.
Opponents of the Transatlantic Trade and Investment Partnership (TTIP) protest outside the headquarters of the Christian Democratic Union (CDU) in Berlin, Germany, March 14, 2016.

The transatlantic trade agreement would benefit a small nation like Estonia.

“Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”  Benjamin Franklin, in a letter to Jean-Baptiste Leroy, 1789.
Negotiations for a Transatlantic Trade and Investment Partnership (TTIP; the US also uses the abbreviation T‑TIP) began in the summer of 2013. Naturally, the transatlantic arrangement to start drawing up a trade agreement between two major global economic forces received plenty of positive and enthusiastic feedback on both sides of the ocean. Europe and America, or the European Union and the US, have been allies and shared common values for a long time and trade is the field in which the two are responsible for the lion’s share of global trade and services flows; they are also very close partners in security matters and, above all, in terms of values.
The negotiations had barely started when the public space was filled with reaction from opponents to the agreement, as well as constant speculation and (in a way understandable) questions about when we could expect the agreement to be signed. If the EU and the US can agree on liberalising their mutual trade, it would benefit many businesses and, as we know, companies are impatient. Time is money, and that is also what causes constant speculation and gives rise to the desire to reach the end result quickly. This expectation can be summed up by the recognition that as early as autumn 2014 the media were reporting wishful thinking that the result might be achieved “by the end of this year”.
At this point, I recommend that those who for some reason find this agreement unwelcome, or who still want to know when the agreement will be concluded, should stop reading and only look at the last part of the quote from Benjamin Franklin. Recent decades have shown that neither speculation nor prediction is an overly gratifying task, at least in trade policy, and this is why the following text aims to focus only on the fixed points which we know about, or on variables that are likely to influence the content, signing and, all being well, successful implementation of TTIP one way or the other.
TTIP is the EU’s fourth major new trade agreement. The first in the series was with South Korea. The year before last, negotiations with Canada were reported to have been concluded, but the final changes to the agreement (CETA) were made only a month ago, with more than 15% of the initial text changed. The EU approved the “mandate” for CETA negotiations—the authorisation from member states that enables the European Commission to commence actual negotiations on their behalf—in 2009, so it took nearly seven years from receiving the mandate until the final completion of negotiations.
Recently, consensus was also reached on the text of a free trade agreement between the EU and Vietnam. Negotiations began in June 2012 and concluded in December 2015—three and a half years. The process for the EU–Mexico agreement lasted four years, more or less the same time it took to sign the agreement with South Korea. To date, negotiations on TTIP have lasted for less than three years, but it is clear that the US is a bigger, more important and technically more complicated partner than all the previous ones.
Based on the foregoing, we can draw two conclusions—EU trade negotiations do not last for less than two years and, more often than not, it takes more time to reach an agreement, not less. South Korea, Canada and Vietnam are in no respect comparable to the US. Compared to these partners, the latter is several times larger, and has a more complicated political landscape (the distribution of power between the federal government and states is what matters here) and a regulatory environment that entirely and at times drastically differs from that of the European Union. Due to the size of the negotiating partner, the EU cannot take a position of power to the extent that was feasible with previous partners and, when we look more closely, the US is used to taking the leading role in nearly all undertakings. (Truth be told, the size of the parties has a rather significant impact on the results of all kinds of negotiations.)

Structure of the TTIP

Negotiations on the TTIP are held in 24 working groups covering three major areas: 1) market access, 2) regulatory cooperation and 3) rules. A few decades ago, customs duties and quotas on goods and rules of origin were the main topics of transnational trade agreements. Now these topics are only one piece of a very detailed puzzle. The following is a list all negotiation topics, in the hope that this will help to illustrate the complexity of the process.
– Trade in goods and customs duties
– Services
– Public procurement
– Rules of origin
– Regulatory cooperation
– Technical barriers to trade
– Food safety and animal and plant health (official term “sanitary and phytosanitary measures”)
– Chemicals
– Cosmetics
– Engineering
– Information and communication technologies
– Medical devices
– Pesticides
– Pharmaceuticals
– Textiles
– Vehicles
– Sustainable development
– Energy and raw materials
– Customs and trade facilitation
– Small and medium-sized enterprises
– Investment protection and investor–state dispute settlement
– State–state dispute settlement
– Competition policy
– Intellectual property rights and geographical indications
As can be seen, the scope of the agreement is very ambitious, because of the complexity of EU–US economic relations. Ideally, the perfect free trade agreement could, of course, consist of one sentence: “As of now, we have free trade”. Historically, however, different countries’ legislation has moved in different directions, and there are different standards and requirements; most of the agreement seeks a resolution to these differences and is not merely about historical customs duties and quotas. Today, customs quotas or duties in transatlantic trade have already been reduced to a minimum, and the real obstacles lie elsewhere. A “TTIP-lite” option has been suggested, especially in the context of accelerating the negotiating process. However, a quickly signed trade agreement that is narrower in scope would leave many problems unresolved, including existing market barriers in bilateral economic relations, which are reflected in the long list above.
As of March 2016, 12 rounds of negotiations had taken place, but the US and EU had provided the texts for only 13 of the 24 chapters, all of which also featured areas of disagreement. Negotiations on the texts of the remaining chapters have yet to commence, even though consultations have taken place on nearly all areas. The first prerequisite, therefore, is that both parties submit their versions of all the chapters and then start the difficult task of finding common ground and agreeing on the text, coming to a mutual understanding of what one wording or the other means in each specific case.
At this point, the main assumption of such negotiations should be kept in mind—nothing is agreed until everything is agreed. Simply put, this comes down to the need to achieve a balance in the whole package. For example, if for some reason one party cannot back down from its initial views on topic x, it might compromise with the other party over topic y and so, ideally, an overall balance is achieved. The aim of the negotiations is to come to an agreement so that the process ends with a win-win situation for both sides. Figuratively speaking, we are not talking about only x and y but the whole alphabet. There are a great many variables that are not clearly quantifiable but which influence the compromise over the full package.
Once the technical negotiations end, the EU will start the legal examination of the text and translation into the official languages; based on previous experience, this process takes at least a year. The next procedural step is to sign the agreement. The signing is followed by the ratification phase. Given the importance of TTIP, the aforementioned breadth of the areas it covers, and the potential for legal dispute over whether the agreement is within the competence of the European Commission or in the hands of the EU member states in some areas (the EU–Singapore agreement created a precedent in EU legislation), this stage is complicated by the dilemma over whether ratification by the European Parliament is sufficient or all procedures required to approve the agreement must also be completed in all member states. A recent article came up with the figure of 42in—the supposed number of legislative bodies in the current 28 member states whose approval is required for an agreement containing combined competences signed on behalf of the EU .
The ratification of TTIP is equally dependent on the US. The US Congress grants the president (the administration) so-called “trade promotion authority” (TPA), under which, if the administration submits the agreed text of a trade agreement to Congress, the latter cannot make its own additions or amendments during the ratification process. The Congress decides to either approve or reject the text agreed by the government. President Barack Obama’s administration was granted TPA in the summer of 2015 for a period of six years. Past practice has been that this so-called “fast-track” authority also applies to trade agreements under negotiation when the authority is received. If this remains the case, it can be assumed that the forthcoming US presidential elections and their outcome will not affect the current TPA in respect of TTIP.
On the other hand, looking at the campaign statements of the presidential hopefuls so far, all the probable candidates have been extremely sceptical about foreign trade liberalisation and TTIP. For this reason, it is not completely certain that the new US administration will want to continue the negotiations at the current pace or in the manner employed thus far. Naturally, there is also the possibility of that frequent political occurrence—once in power, positions presented in the heat of the election campaign do not appear so important and practical experience changes viewpoints, albeit simply for the reason that several other impacting factors have changed.
The ratification process is followed by the agreement entering into force, assuming that the ratification has been successful for both parties, which is why a certain period must be left between de jure enforcement and the last ratification. Often, the intermediate solution for an agreement is temporary enforcement. Predicting the conditions and manner of this option theoretically becoming a possibility in the context of TTIP would be to jump to conclusions.
Presuming that everything has gone smoothly and the EU–US free trade agreement comes into force on x date, the companies hoping to profit from it can still not be certain that this is the day that their relations with the US market will improve. Once again, based on earlier trade agreements, it is likely that in several areas TTIP will include transitional periods that might last for years. The extent and nature of these periods, whether they include gradual liberalisation or simply delayed enforcement, depend on the negotiations—which themselves are dependent on, among other things, external factors that even the contractual parties cannot completely influence.
Throughout the TTIP negotiations, there has been criticism about them being conducted behind closed doors, and the texts not being made public. The reason for this is simple—if everything were public, it would be impossible to come to an agreement on the package deal. Both parties would be aware of each other’s interests and readiness to compromise, and a good agreement cannot be achieved on such a basis. In the end, in addition to a win-win situation, good negotiations are characterised by dissatisfaction and disappointment on the part of both sets of negotiators because they did not get everything they sought; but, despite this, they are pleased with the compromise.
Looking ahead, it is worth mentioning that, in fact, international (trade) negotiators usually hold two different negotiating processes. One is the transnational negotiation with the partner country, and the other—equally important—is the subsequent domestic process, during which the partners need to “sell” the achieved international compromise to their home audiences (government, parliament, public etc.). Countries usually have different interests and negotiators are there to find the common ground in the countries’ positions; later they must prove to their home audience that they did not go beyond their competence and that, even if they were forced to give in with regard to one area, they received much more than expected “in return” in another.
All of the abovementioned aspects—an agreement is reached only when everything has been agreed; negotiations cannot be carried out in public; and there are, in fact, twin-track negotiations—are the alpha and omega of most theories of negotiation, which the majority of us either have never dealt with in practice or do not understand in its various stages.
As an aside, when the US ambassador to Estonia was asked, in early February 2016, during his first public lecture, why the TTIP was being negotiated “in secret”, the experienced diplomat explained the essence of the whole issue in terms of the experience of the student who asked the question: “Chris, have you ever bought a car? What about property?”
Since the beginning of the process, Estonia has been among the active proponents of TTIP. The US is an important trading partner for Estonia and as a small country we depend on trade to a relatively greater degree than many other EU member states. Every new export option and more liberal treatment in the target market is crucial. The EU–US trade agreement would significantly increase Estonia’s (economic) security. While the negotiations continue, having now reached the halfway stage, Estonia’s role is limited to observing the process and consulting with the European Commission. Meanwhile, we hope that the agreements will be as profitable as possible for our companies and will be made as soon as possible. As the process is incomplete, we must still await the more substantive issues and specific details of TTIP.
In the history of European Union trade negotiations, the TTIP process is the most transparent so far. The European Commission’s negotiating mandate is available to the public and the Commission’s website ec.europa.eu/trade/policy/in-focus/ttip/ provides up-to-date reports on progress and context.
This article expresses the author’s personal views.

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