Chase: Dynamics have to change to deliver EU-US trade deal

Peter Chase.jpg

The single biggest problem facing the EU-US talks to deliver a transatlantic trade and investment agreement (TTIP) is the culture of trade negotiations. It is not about I win, you lose but rather we both win or we both lose, said US Chamber of Commerce, Peter Chase.

Peter H. Chase, Vice President Europe, U.S. Chamber of Commerce. He spoke to EURACTIV’s editor-in-chief Daniela Vincenti

For a story related to this interview, please click here.

What do you expect will be in the mandate for negotiating the Transatlantic trade and investment partnership that member states will agree on at their Trade ministers meeting on Friday?

I expect, I hope, that Trade ministers will approve the mandate. I would say we have a 90% probability that the ministers will approve the mandate.

As you know there are some questions. France has some strong concerns with respect to the audiovisual industry and it’s an issue on which they put a lot of political importance. It’s not very clear when the French talk about cultural exception: is it just the audiovisual industry, movies and music?

A number of European countries feel they have their own offensive interest in that area. They also feel that Europe tactically speaking is better off not immediately taking something out, knowing that the Commission will guard the European interest in the negotiations.

If they take something off the table, they will have to pay for it and that could get to the offensive interest of other member states.

Considering the European Parliament backed France on taking out cultural exception from the mandate, what will the Americans take off the table? Will they?

They will not take anything off the table right now. It does not make any sense for them. They are going to go the first round of negotiations …

Let’s assume the mandate is adopted, let’s assume it has something akin to the Parliament resolution on audiovisuals. The United States will understand that and will go into the negotiations.

Hopefully, President Obama and EU leaders, Barroso and Van Rompuy, will formally launch the negotiating on the margin of the G8. In the end what matters is your final package. There will be a good balance on the offensive and defensive interests on both sides.

I find it very interesting that sometimes what is portrayed as being in each side’s offensive and defensive interest doesn’t really reflect reality.

You mean it is just a matter of perception?

Or is it a political sense. The reality is that this negotiations is a different one. This is an investment-based relationship, not a trade based one. That makes all the difference. We either both win or we both lose.

So, even if you take agriculture. People in this town talk about agriculture as though it is a defensive interest. People in Washington DC talk about agriculture with an offensive interest—meaning they want to try to open markets. There is some truth  to that. Europeans have double of the exports in agriculture, than Americans do—about $18-19 billion.

But what it’s interesting is that French and European farmers have a huge amount to gain with additional access to the US market.

The US has a safe food supply system. That means there are a lot of regulations that makes it hard for Europeans to export to the US, even though Europe is a huge leader in value-added agricultural products.

Will they be able to bypass the regulation gap?

I would not say bypass. The discussion about regulatory cooperation is this: We have both increasing our level of regulation and protection in the past years, but the gaps between the two systems are coming closer.

What regulatory cooperation will do is that it will build bridges over the remaining gaps. I look at US and European regulators and what I see is that they reflect our political traditions. Our politicians are very responsive to the demands of our people. Nothing gets people more riled up than a food safety problem.

Both of our regulatory systems are trying to make our supply food chain as safe as possible. It will never be immune to some problems, but the resilience of the system to respond to crisis, the minimization of the opportunities for that to happen are becoming slimmer.

That is why regulatory cooperation will become increasingly important for small businesses in the agriculture sector. In order to export food stuff to the United States you need to have a facility that has been certified by the FDA as providing safe food.

If the FDA [US Food and Drug Administration] says we are happy to let food safety inspectors make that designation, then you can have a tremendous increase of trade. It will open markets for a lot of small businesses.

This is where I see a huge amount of benefits in this. I am convinced here that we either both win or we both lose.

That’s why we need to both go in with an open mind and drop the defensive line—which makes some people wonder if we can actually achieve a deal – because we will all lose if we didn’t go forward on TTIP.

You mentioned regulatory cooperation, key for TTIP: How do you think this can be practically be put in place?

It is actually very simple. When you do your agreement you’ll do all trade parts: market, services, rules of origin, IP, public procurement, etc.  You tackle the basic regulatory aspects: technical barriers to trade. Then you have a part that oversees a much more ambitious approach to regulatory cooperation. But just because it is ambitious, that does not mean it is difficult to write or to agree.

The concept has three steps: you need to set a clear goal of where you would like your regulators to go to. You have to give them tools to use. Then you create an institutional mechanism to drive the process over time.  Goal, tools and mechanism.

Defining what you want to do is pretty easy. The US Chamber had a team in town last week to talk about the tools—which is about how you do it. The tools you can integrate in your existing impact assessment and just integrate it.

Essentially you say to the regulators: If you are doing a significant regulation, which is going to have an impact on society, you have to ask the question whether this is going to have an impact on transatlantic trade. If the answer is yes, then you have to start to spell out a number of questions. Is this product or service regulated by the other partner, who regulates it and what sort of regulation do you have in place. How long has it been regulated? Did they try different approaches? Would these approaches be appropriate in our own jurisdiction?

You basically build that discipline into the process. Our regulators on both sides do a lot of impact assessments. They don’t like doing them, but it’s good regulation—looking at all the possible concerns.

That would be a total novelty. Of course, that would apply primarily for new regulations. But you could apply the same kind of tools where we have existing body of regulations. The question is: Has this new democratic transition I talked about translated into a place where we regulate this product or service equivalently? There is not so much difference in the way we regulate.

Can you take some examples on where you see regulatory convergence?

To me one of the best examples is the aircraft certification. There is probably no more regulated product than in aircraft. Every single nut and bolt is gone over whether or not is safe.

That happens also in an area where we also have a large trade dispute Boeing-Airbus. Nonetheless, the US Federal Aviation Agency (FAA) and European Aviation Safety Agency (EASA) reached an agreement in 2009 that came into effect in 2011 that if the FAA certifies a Boeing as being airworthy, the EASA accepts that certification. The same applies with EASA certifying an Airbus, the US accepts that certification.

We don’t do things 100% the same, but it is close enough that the margin of error is minimal. That is a perfect example.

Another area where the US practices the precautionary principle is on security. Ever since 9/11 the US Department of Inland security and authorities have been very intent on avoiding that something would happen. Yet, the US recognizes if the Europeans certify a shipper as someone which has a safe supply chain. So that is mutual recognition of secure supply chain.

The regulators spend a lot of time together trying to understand if we have similar approaches.

I think for example in the auto sector it is nonsensical that a car made for the European market can’t be sent to the United States. At some point in time our regulators will see it that way too.

Because that gets to one other issue: People keeps saying we have tried that 15 years ago and it didn’t work. A lot has changed in 15 years. Our regulatory systems have matured and the absolute volume of goods going into the US and the EU has increased tremendously. Related to that, the provenience of these goods has diversified.

The EU-US trade predominated but now there is a lot of trade coming from different areas. Regulatory systems are under stress while budgets are not expanding and in some cases even getting cut.

If I were a regulator: I want to keep my people safe, I want to be efficient in order to be effective. The need of regulators to fulfill their mandate – protect their people – and be as efficient as possible will drive regulatory cooperation and build a partnership with their European counterpart.

Again, we will not be able to do this across the board. We will not do it in every sector or in every service.

Are you excluding some sector already?

Absolutely not. Even in Europe it has not happened in every sector.

Because we have an unfinished single market …

Right. We have an unfinished single market  in the United States too—particularly in professional services.

You have to look at a certain period of time, but no-one is taking anything off the table. For this to work the regulators have to trust each other. It takes time to build trust. They have to convince their political oversight that trusting the transatlantic counterpart will make me them do their job better.

You can build a bridge if the gap between the two systems isn’t huge and where it is huge–you just have to build more pillars. These will be built not by the negotiators, but by the regulators.

The industry will play a big role—bridging the gap between the regulators—showing evidence of similar approaches in regulations. You can get there with proper consultation with civil society and stakeholders.

You hear from civil society that this is undermining or weakening regulations. How do you tackle this kind of negative perception?

That concern is understandable. But it comes from not understanding on how this is going to be structured, as they think a trade negotiator is going to negotiate regulations. It’s not. It’s going to be regulators that would do it.

The other reason for concern is that maybe they do not respect our regulatory system. Regulators on both sides strive really hard to do what they do. There is no regulator that is going to consciously weaken regulations in order to permit trade. That is not what they do.

How do you avoid a debacle like ACTA – the Anti-Counterfeiting Trade Agreement?

In the US before initiating any regulatory action you have to publicly declare it. You do a notice of proposal. You take comments from everyone. European firms have always commented on US proposed regulation—civil society, stakeholders, individual citizens do. If people are concerned and want to get involved, they can be part of the debate especially in today’s internet age.

People look at this negotiation are afraid that it will not be transparent. Businesses want as much transparency as the NGOs on this. We know negotiators cannot hand out negotiating texts. But when it comes to the regulatory bit it will be open and transparent.

When you get in the regulatory space and if you have an open regulatory system, people will be engaged.

The EU comitology process – delegated acts, implementing measures – they haven’t yet built up yet the full panoply of transparency on regulations at that level, because it’s relatively new. But they are moving in that direction.

People have to understand, however, that just because the system is transparent the regulators will do what you want them to do. Business in the US complains about US regulators all the time-the US chamber takes the US government to court on a regular basis. Civil society organisations also feel that the regulatory system isn’t exactly acting in the way they want.

It is not because the system is closed, but in fact it is because the system is open. There is that tension between protection and allowing for some risk.

How do you allow for dissipating this tension in a relatively short time and end negotiations by the end of the Commission’s mandate in October 2014, as Commissioner De Gucht is aiming for?

Both sides want to advance quickly. We are doing this because we are in an economic crisis and because there are economic gains. These gains you get in different phases. The first is when you announce the beginning of the negotiations. That gives people hope that we are going in the right direction.

Secondly, is when you are negotiating and businesses understand that you are changing the rules and you are doing it quickly, they start changing their investment plans. Businesses start to invest even before the negotiations conclude.

When the negotiations conclude and you immediately reduce the tariffs and immediately increase the government public procurement opportunity, that’s the third bang.

The fourth bang is this regulatory space where you build bridges between now and the time you conclude on each of the sector.

We have negotiated NAFTA in 14 months so it is not impossible to negotiate this starting in July and getting it done by October 2014.

Isn’t that a hard push?

Absolutely. If you want jobs and growth, I would say it is worth to do the hard push.

Commissioner De Gucht said it’s going to be a living agreement. Isn’t that a way of saying we are going for a minimalist approach and build on it?

Not at all. That it’s about the regulatory part. Because you are not going to get everything done in every sector in a year +. You might do in three years in pharmaceuticals and five years in medical devices and seven years in cars. That will depend in the relationship between the regulators.

So the initial cluster would be composed by what exactly? Tariffs, public procurement … What do you think we will have by October 2014?

The agreement will open up trade and goods. Removing tariffs is part of that. But another part that people don’t talk about is customs facilitation. The efficiency gains from making it easier to ship from here to the United States.

The World Economic Forum has done published a report on the economic gains of trade facilitation. It showed amazing sums we could gain—much bigger sums than anyone had anticipated. In the EU-US context we could do a lot.

The third is trade in services, a sector totally underappreciated by politicians in the US and Europe. They all talk about manufacturing, which is important, but if you look at net job creation in both the US and Europe, it’s in the services sector. Even in the manufacturing firms — they do a lot of internal services. It is the efficiency of the operation.

EU-US services trade has been going up tremendously over the past years. In 2000 services trade was about 28-29%. Between 2000 and 2012 overall trade has grown and the services sector is now at about 36%.

It was indeed called the sleeping giant … How TTIP will impact on the ISA, the International Services Agreement in preparation?

You are clearly not able to get an agreement in the WTO unless the EU and the US are in agreement with each other. We can be more ambitious than we can in Geneva. We can do more. If we can do more it helps build up conceptual and intellectual basis for the arguments of negotiators in Geneva. It also provides an external stimulus for Geneva negotiations.

Let's go back to the mandate. If the EU takes audiovisual off the table, the US might retaliate. What would you think they would take off the table?

The single biggest problem facing these negotiations is the culture of trade negotiations. This is not I win you lose. People have to understand: we are both mature economies with good regulatory systems. We are deeply invested in each other. This is not: I want, you want that one.

That sort of dynamics is not going to lead us anywhere. If they collaborate, they can do it quickly and they can get the benefits from it.

I work by probabilities. If I look at all the places that the US have barriers to trade and investment that the Europeans would like liberalized, I can assign a probably of success to each.

The one that has the lowest probability is maritime cabotage. The services between New York and Philadelphia and Savannah [European companies can only ship to one port in the US, the internal cabotage can be done by American cabotage companies].

Frankly, I don’t think it matters for European companies. I don’t think there are many companies that want to engage in cabotage. You need to have a whole commercial presence in the United States.

When the French say they want to take the audiovisual out, what they really mean is that they want to continue to provide state support to musicians and movie makers. US industry does not worry about that. And that they want to use instruments – like quota –and keep up demand for European music and movie. That is not an issue, either.

The cultural exception is not just an EU-US issue as it is different vision between the member states.

I suspect that if the French take cultural exception off the table, the US will take the Jones Act on maritime cabotage off the table. If I were a EU maritime country I would not be very happy.

Again, I tend to think that when you create walls to protect an industry, almost always the long-term impact of that to usually weaken that industry.

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