This article is part of our special report EU-US trade talks: moving forward?.
To maintain a high political momentum for the Transatlantic Trade and Investment Partnership (TTIP), negotiators will have to move fast to secure some successes and build the desire for more, said Fredrik Erixon in an interview with EURACTIV.
Fredrik Erixon is a Swedish economist and director of the European Centre for International Political Economy (ECIPE).
He spoke to EURACTIV's editor-in-chief Daniela Vincenti.
Transatlantic trade negotiations are expected to start for real in October. Are we behind schedule and will we be able to have a deal before the end of the term of this Commission?
Timing is important. While it is impossible to get a deal done in the lifetime of this Commission, US negotiators want to finish before President Obama leaves the White House. They don’t have time to sequence negotiations in the same fashion they might have done in another FTA. They don’t have the luxury to negotiate issue by issue. They have to deal with many if not all issues at the same time.
At the same time you need to build a dynamic that can generate quick results, results that will build the momentum for more results. So you start with the low hanging fruits-tariffs is one of them-you get to work on market access issue for industrial goods and merchandises straight away – that is going to be easy ones. Market access issues for agricultural products are more difficult but you deal with all tariff lines that are uncontroversial.
You work on all of them but at the same time you need to start having a conversation on the difficult issues as well.
What are the uncontroversial areas where they can quickly reach an agreement?
You have a couple of thousands tariffs lines where tariffs are zero or very low, 1.5-2% . Tariffs like that do not defend anyone from competition. They are just a nuisance. You have that on both sides on, for example, copying machines, electronic devises, lots of commercial goods and some chemical compounds.
There is no secret formula for trade negotiations. If there were, we would have seen the Doha Round being concluded. The point with trade negotiations is that everything is on the table until everything is wrapped up. That is the core guiding principles of trade negotiations.
At the same time you need to advance negotiations so that you can park a couple of issues on the sideline and move on.
As I see it, before Christmas they need to have parked a couple of issues on the sideline and tariffs is going to be one of them, with also two-three sectoral mutual recognition agreements close to the finishing line, in perhaps electrical products, pharmaceutical testing, perhaps something on chemicals.
All of them are doable. It is doable to a have some mutual recognition agreements advanced to the point that negotiators feel confident they can park it and move to the next on the list.
Would you say that Washington better prepared than Brussels in terms of manpower?
You don’t need a lot of personnel to do a trade deal. But you need a lot of people for internal consultation, especially on the EU side, and especially when you deal with regulations.
The member states have a formal conversation between regulatory bodies in 28 member countries.
The main difference between US and EU is that given the internal differences between the member states over trade the Commission does not have the luxury to go line by line, they need to come up with the overall framework, because this is the way you can deflect attention from issues on which individual member states may think this goes too far and are not prepared to go ahead.
So, in order to present a deal that is going to be acceptable to every member states, you need to come up with the final results, you need to have the complete vision there. If you don’t have that member states are going to pick on each and every issue.
It is only when they are presented with the ‘fait accompli’ and final results that they will say yes or no.
Like cultural exception?
That one was a sideshow. It didn’t have any real meaning at all for the substance of the trade talks. Not even for the French.
The United States has not come up with its own sideshow yet. What do you think are the potential deal breakers?
One of the potential deal breakers is GMOs. If there is not going to be any change at all on GMOs, it will be difficult to get the deal through the US Congress. Max Baucus, who is the most powerful senator in trade policy, has already said that. No change, no deal.
You can do it transparently or you can do it dirty. The transparent way is to say: we agree on a number of cross-horizontal rules that are going to apply for every regulation that we want to use affecting trade. When, for instance, you are making impact assessements on future regulations you need to take into account different factors. You need to give the high weight of scientific evidence when you design a regulation.
It is not tied to a specific regulation, it is just a generic principle. What you achieve with that is basically finding a way to deal with the GMOs issue.
The GMOs issue in Europe is basically an issue where the precautionary principle stands against scientific evidence. There are cases where there have been recommendations by regulatory authorities to grant either farmers or importers to plant GMOs, but they are using the precautionary principle because science is too uncertain.
What you want to do with such horizontal discipline and regulations is tighten up the decision-making process.
The dirty way of doing it, is basically to cut deals on individual GMO crops for individual European countries. I don’t think America would force every country in Europe to open up the market for importers of GMO crops with the understanding that not every country will, but there are also many countries that want to import GMO crops-and they want to plant them themselves. So let’s do a deal that is directed with them and not a deal with the EU – find a way around the internal conflicts of the EU.
We have already countries in Europe that have said no to all GMOs and other countries that are importing GMOs. It’s not a clean, transparent system, but it is how it is.
Absolutely. Then you have a couple of external factor on internet regulations and cross border data portability—which could become deal breakers on both sides.
But I think it is mostly the United States that is going to say no to a deal unless they find a situation that at least preserves status quo for US companies to maintain Safe Harbor access to the EU.
But other than that I don’t think there are other deal breakers in the sense that they are going to stop the whole trade agreement.
There are going to be a lot of sensitive issues, but there are waya around them. Agriculture – a couple of products where they either have very high tariffs on both sides or very high subsidies and these tariffs are there to protect competition against each other— like sugar, meat where tariffs are high and they need to find a way. One way would be to exempt them or have a long-phasing out period until tariffs expire (and progressively lower them during that time).
What kind of impact will TTIP have with partners we already have FTA? And who is afraid of TTIP and are they right to be afraid of TTIP?
There are different aspects to this issue. You will find lots of different reactions from other countries: going from almost conspiratorial views coming from some in China, to supportive propositions coming from others. I think most of these fears are not so much about actual trade consequences, but more about power structures and how to deal with trade issues in the future.
To start there are a couple of things both sides can do to take away the fears. One of those could be the United States needs to find a better way to integrate Canada into TTIP. Canada is doing its own FTA with Europe. What’s the point of having a NAFTA with Canada and Mexico if you are going to have three different FTAs between these countries and Europe.
Likewise Europe has to speak with countries that are part of the single market or with whom it has a customs union, like Turkey and find ways to have an open dialogue and address some of the concern they have.
The other part is more directed to the emerging market that claim to play a much more significant role in all sorts of all global policies today.
The problem is that they are the ones that have blocked the Doha round. They are the ones that have not been prepared to negotiate a good global trade agreement. They talk with a split tongue. On the other hand they want to see multilateral advancement, but they are the one that have refused to accept liberalisation in the Doha round.
Brazil, India are the two obvious examples. China has been playing not an opposing role in the Doha round, but has been standing on the sideline, claiming to be a recently acceded member states – meaning it acceded after the Doha round was launched as they entered in 2001, so that they took on much more liberalisation than others. So they say: We have done our part, now you have to do your part.
China is the big elephant in the room in terms of providing opposition to TTIP, which may have consequences on the way the EU deals with China.
A third complication is Japan, because the EU is negotiating an FTA with Japan and Japan has recently joined TPP (the Trans-Pacific Partnership). Japan represents such a big part of output and trade in those areas where regulatory convergence is of importance that you just cannot take Japan away from the table.
This is also partly true with China. As China and Japan are not rule takers in the way that other countries are, other economies adjust, but China and Japan go with their own rules and standards.
You need to find a way to coordinate what you are doing with Japan and to some extent China. You have to make sure that whatever you are doing will be compatible with their system.
You are right though on the fact that a trade agreement might not just create new trade but also reshuffle trade among countries.
In this case you take the case of Brazil and meat exporters with the US. The fear here would be that we stop importing from more efficient producers in Brazil and import from less efficient producers in the US. That is going to create a cost and it’s not going to be good for us.
A lot of different studies are estimating the economic consequences of TTIP but they come to very different results. Some would say that trade aversion is significant and others say it is insignificant. It really depends on who you trust the most.
The point is that on areas where you have high tariffs against everyone they have a trade preventive effect. You have a lot of trade now that is going to be diverted because you are doing an FTA with another country.
You are probably going to create more trade than you divert trade. If you look at past examples on GDP level, you find that lots of non-participating countries will benefit from TTIP, simply because if GDP expands in America and Europe they are going to import more from other countries as well.
If you import more electronic goods from America, you are going indirectly import more from South America because this is where a lot of the parts suppliers are.
Another thorny issue is the investor-state dispute resolution. Do you really think that can sour moods?
Investment treaties inside or outside trade agreements we have with countries where we don’t trust the legal system of that country to respect fair rules – that is where investor-trade dispute resolution make most sense.
We don't have that problem between Europe and America. You don’t need an international tribunal in order to settle disputes. America has a problem with individual countries in Europe where they believe the legal system is ineffective, corrupt.
So do you think this is a non-issue?
Not necessarily. The question whether you should negotiate an investment treaty inside TTIP depends on two facts: Will it actually liberalise something is the first one. Investment treaties you do firstly to get investment protection isseus and then open up markets. The other leg of that calculation I am not so sure about.
America is a country which has lots of difficult administrative problems when it comes to foreign investment in certain sectors, when it comes to telecom or maritime sector. I am not so sure you can do a liberalising agreement through Congress, even when it concerns the EU.
This does not prevent foreign investors to purchase assets abroad but it means that America will reserve the right to say no if certain conditions are not met. And these conditions can of course be manipulated for political purposes. We have seen it in the US Congress where you have a Congress-lead tribunal to basically oversee foreign investors in certain sectors.
IF you cannot do an investment treaty which is going to have liberalising effects, than the value of having an investment treaty will be low.
The other issue is the extent you can design an agreement which you can externalise with other countries. In other words, can you build an agreement which has the capacity to change the investment relations you have with Turkey, for example.
This could be highly beneficial for the world economy.
Take for example the issue of subsidies. You can restrict subsidies by deciding what it’s called competitive neutrality regulations — any country cannot give a particular advantage to any of its industries to the expense of foreign investors.
The problem is that existing investment treaties are weak on those issues. So it’s very difficult for anyone to basically go to one outside tribunal and claim his or her rights when they believe they have been seriously disadvantaged by the government conferring advantages to state and enterprise which changes the value of the investment entirely.
But if you can start a way to advance on this issue, there is a strong case for doing an investment treaty. But I don’t see yet the States and the EU ready to do that yet.
Europe has yet to come up with an idea of what it wants to achieve with this investment treaty, partly because there are internal fights between member states. They all have different ideas on what an investment treaty should achieve.