In the process of negotiating the Transatlantic Trade and Investment Partnership (TTIP), one has to understand that not everybody is going to be happy. But that’s a central part of the democratic process, American consultant Jonathan Kallmer told EURACTIV Slovakia in an exclusive interview.
Jonathan Kallmer has previously worked for the US Trade Representative.
He was speaking to Zuzana Gabrizova, Chief Editor of EURACTIV Slovakia.
Let’s start with a bigger picture in which trade agreements like TTIP appear. You said that the word “globalization” is overused. What do you mean? Aren’t these trade agreements a direct manifestation of it?
The term globalization has been used so much, that it now contains all kind of political baggage on both sides, regarding its benefits or its costs. The existence of baggage, and the existence of preconceived notions on both sides of the debate, is in my mind one of the most unhelpful things when trying to analyze – in this case – the value of the trade agreement.
Different people define globalization differently and see it through the lens of their own political preferences. It is better to explain yourself and not use globalization as the shorthand for what it means for me, when it could be something different for somebody else. For me, it is essentially an economy characterized by the central role of markets in determining the allocation of goods and services, low barriers to interactions across borders, but also a strong and thoughtful regulatory presence, because markets are not perfect, and there are things like health and safety and the environment that it is appropriate to protect.
The argument used in the discussion goes that while the benefits of (TTIP) will be diffused among a broad range of subjects, the costs and losses will be concentrated, and thus higher in few segments that drive the opposition. You yourself said that there will always be trade-offs in agreements like TTIP. Your point was that we should make sure that there are mechanisms in place that will allow for those who are not necessarily immediate winners to gain something in the future. What kind of mechanism did you have in mind?
I’ll give you an example. The North American Free Trade Agreement (NAFTA) is an example from twenty years ago, where the US made a similar kind of choice to engage in increased integration with two other economies on the view that overall, it would create many more opportunities than it would destroy or prevent. But necessarily, there would be some people who will be displaced by the integration of the markets. In my mind, and I think in mind of the US government, one of the imperatives of an agreement like this is to do whatever is possible to address that displacement.
You have policy tools to do it. In the US we have Trade Adjustment Assistance, which is a Congressionally authorized program. Its purpose is to provide some cash transfers, some job retraining, another support services for people, say workers in southern Texas, whose jobs went down to northern Mexico. It is inappropriate to just ignore them and say that there are not people who get hurt by trade, but it does not mean we don´t do anything. We do what we can. It’s the second best option to be sure that we do what we can to give them the opportunities to revive.
Was it an integral part of NAFTA?
No, it was a piece of national legislation, but it was considered an important policy counterpart to it and it continues to play that role. More recently, one of the debates has been how broad should it be? Should it include just manufacturing workers? Or should it also include services workers who lose their services jobs, too? It’s just one example of the kind of thing that could be done to address that displacement.
Are there any specific lessons learned from the implementation of NAFTA that are being used while negotiating TTIP on the American side?
I’m sure there are. One of them actually came about even before the TTIP. NAFTA was the first US agreement that contained discussion of labor and environment issues. But it did it in the form of side letters to the agreement, in that time it was a big achievement, but concerns grew that they were not fully part of the agreement.
What the US has done for the last decade has been to move those provisions into the agreements themselves, creating standalone labor and environment chapters and gradually strengthening those provisions. I think doing that reflects some lessons learned about either the experiences that people actually had as the result to the NAFTA, or the evolution of political forces in the US. They called for this, and called for a steadily increasing commitment to labor and environmental protection in agreements alongside the commercial provisions that bring down trade barriers.
The issue of transparency of TTIP negotiations is widely discussed. Even though the European negotiating mandate has been made public, after being leaked some time ago, some level of secrecy will probably stay throughout the negotiation. How do you usually justify that?
You can’t have total transparency in many kinds of international negotiations, and certainly in trade negotiations, because the whole process involves people operating on the basis of delegated authority from Parliament or Congress, or somebody else and, almost by definition, it involves balancing the competing interests of a lot of domestic stakeholders.
Balancing the agricultural market access interests of dairy producers, versus meat and cattle ranchers, versus financial services providers, the trade-offs occur at the micro level and the macro level. I am describing just the US system, although I think some analogies could be drawn to the EU and other systems.
That is a central part of the democratic process; people understand that not everybody is going to be happy. When you have got that set of dynamics of competing interests and negotiators having to listen to those interests, make some judgment calls, go to the negotiator on the other side, who has got his/her own set of interests and balance. It is a very iterative process. And you have to have all kinds of hypothetical “what-if” conversations. Otherwise, you are never going to find the landing zone.
It is a situation of delegated authority just like you have in corporations. You simply can’t run a large organization if all of the ultimate stakeholders get to vote on every tactical decision.
But I will say that all that being true, I think the governments have moved quite a long way down, but they can go a little bit further. And I think that they’re talking about that and trying to find the recipe for communicating as much substance and as much detail as possible without compromising the ability to have those conversations.
Would you say that that is the effect of the public pressure that we are seeing now? Every discussion on TTIP now starts with the assurance that no social, environmental, health and other standards will be compromised. Isn’t that the result of the pressure that is already in place?
Absolutely. The public pressure has been tremendous on the US side too. The business community is almost just as outraged as the labor and environmental community about what it perceives to be an unacceptable lack of transparency in the negotiations; the Congress is really upset about it as well. This is a new phenomenon for us. A couple of years ago, when we started negotiating the Trans-Pacific Partnership, people were very worried about Vietnam in particular. That´s when the concerns about the transparency of the negotiating text and the inability to know what was been negotiated really came out for us. I totally agree that the public pressure has been tremendous the last two years on this.
So what is the state of the public discussion in USA on TTIP these days?
I would say it is pretty mild. I mean it’s not like in Europe and in specific member states. Its not nearly as much the subject of attention. Part of the reason is that on certain issues like investment, we have been having these discussions for fifteen years. We have had those fights.
Another big reason is that people see TTIP, compared to the Trans-Pacific Partnership, as the “easy” agreement, as the agreement with people “like us” that share Western values, compared to people who are from developed countries. A lot of that is misplaced. But I am just describing how I think a lot of public would see it. There is not a whole lot of attention on it at all right now. There is among the very active business community groups and labor and environmental organizations. They are really focused on it.
Does the resistance on the part of some EU member states come as a surprise to the US side?
It’s hard for me to characterize how the negotiators feel about it. When I was in the government, I was in charge of investment policy. I lived and breathed ISDS [Investor-state dispute settlement] every day and I totally misread it. I thought this will be one of the issues that will go under the radar. (Myself) and a lot of other people who follow this are surprised by that. On the other hand GMOs, hormones and chlorinated chickens – you could see that a mile away.
You mentioned that, what maybe the Europeans do not always realize, is that there are quite some regulatory sensitivities on US side as well. What would they be?
I am not a legal expert on the competing regulatory regimes. So, I can’t make absolute statements on what is higher and what is lower. But the concern about ISDS or regulatory cooperation compromising the ability of governments, especially at the state level, to protect the environment, is huge. The US is not nearly as laissez-faire as it’s often portrayed. We’ve got a huge number of what we call “trial lawyers,” whose basic existence is to go and find possible breaches of regulatory regimes and assemble plaintiffs and pursue lawsuits against companies. And you can’t do that if you don’t have the regulatory material, or the regulatory framework to provide the basis for claims.
In Europe, energy is high on the agenda given the situation with Russia. In the context of TTIP, the issue of US export exemption on oil and gas comes up. According to some reports, Europeans would like to see it dropped. Do you see this coming?
There are a lot of people in the US that feel the same way. Crudely speaking, there is a division between the energy producers – oil and gas companies – and energy consumers. We’ve had this ban in place since 1978, I believe, and it had to do with the energy crisis in the Middle East, the movement in Iran towards a more extreme regime, and concerns about energy security.
The starting point is this very restrictive regime that has not really been called into question until the last few years when fracking became so popular and we have realized that our energy supply is larger than we thought. Since then, some companies were actually able to export energy products and to get licenses from Commerce Department to do it, but the overall situation is still determined by a significant set of restrictions. Because of the connection to national security, and in spite (of) that, there are a lot of forces in the US that favor greater exports, I don´t necessarily see TTIP as being the agent that soon unlocks all of that. Commercially speaking, and in terms of security, I suspect that it will be less of a concern in three or four years as it is today. If we knew we had to do this deal in a year, then I wouldn’t anticipate that there would be a robust energy chapter, because the horizon, in my view, is a little bit longer than that. Everything will be changing in energy in that time.
How about financial regulation? Would that be a kind of controversial point?
It’s a hugely controversial point. The US financial services community is allied with the European financial services community, and those are allied with the Commission against our Treasury Department.
The Treasury Department represents the Federal Reserve and the Securities and Exchange Commission, which are independent agencies. It represents those two agencies in our executive branch policy making process on financial issues.
So, it’s got a lot of support for its concerns, that addressing financial regulatory issues with the Europeans could have the potential of undoing the compromises laid down in the Dodd-Frank legislation. A lot of people, including myself, are pretty skeptical of that concern, and I anticipate that this will continue to be a real fight.
Provided that TTIP is successfully negotiated and comes into effect, how would both sides address the issue of updating their respective regulations that concern mutual trade and investment in the future? Would we see a new transatlantic body or a specific platform for consultation before such legislation is adopted, or even drafted?
It is a very good question. We got to a place where everybody agrees nobody will be forced to change or lower their standards; nobody will be forced to do mutual recognition. But we will look for places, where we can share information, avoid duplication.
One example I am working on right now concerns maximum residue levels of pesticides. The US and EU have basically the same level of safety, and same view on where the line should be, but because trade flows are different, the EU might not have the maximum residual level on some one product and we might not have maximum residual level on another product. There ought to be a way to decide, and you do not have to do an entirely new regulatory structure necessarily, but somehow to benefit what the other side has done without changing one’s basic approach.
One of the objectives is – once the negotiations conclude – to have in place different mechanisms, council or committees, whether general, or at the level of each sector, to review the situation every year or something and identify – for example – how we can benefit from each other’s work and information, in addressing issues like maximum residue levels.
Can we say what would be the extent of such coordination?
It could be something called the Regulatory Cooperation Council. It is hard for me to say how significant it would be, or what the scope would be. There could be some new bilateral mechanisms, although probably not large agencies with tons of people.