EU, US gear up for ‘real’ negotiation round on trade deal

SPECIAL REPORT / There is a sense of anticipation in Brussels as negotiators are frantically preparing for next month’s second "real" round of trade talks with the United States in Brussels, but progress is unlikely to be perceivable before December, experts say.

After a first testing session in July, negotiators are expected on 7-11 October to delve into complicated dossiers to pave the way towards a Transatlantic Trade and Investment Partnership (TTIP) which could over time boost EU GDP by 0.5% annually and help create approximately 400,000.

"The first round was really to lay out ideas and concepts of how to address the various issues. We weren't negotiating text," United States trade representative (USTR), Michael Froman said recently. "But it was a very productive week of consultations, and I think it sets us up well for when we get back together in October to begin the real negotiations."

US negotiators are indeed waiting for their own impact assessment report expected to be ready by the end of this week (26 September). But sources say Froman will still have to review the findings on sensitive areas and discuss them with members of Congress, in time for the October meeting.

The second round agenda is packed, according to sources. Negotiators are supposed to move simultaneously on all fronts:  elimination of tariffs, regulatory cooperation and rule-making, and last but not least, rewriting the global trade rulebook after the collapse of the Doha round, taking into account the complexity of the modern supply chains and the role of services and the internet economy.

“They don’t have the time to sequence negotiations in the same fashion as they might have done in another free-trade agreement,” Fredrik Erixon, director and co-founder of the European Centre for International Political Economy (ECIPE) told EURACTIV in an interview.

“At the same time they need to build the dynamic which is going to generate and harvest quick results so that you build the momentum for more,” he said, adding that tangible progress will be known only after the two top trade officials, EU Commissioner Karel de Gucht and USTR Michael B. Froman do the first stock-taking expected for January 2014.

Scent of deal-breaking?

Building the dynamic seems a mind-boggling exercise. Even though businesses on both sides of the Atlantic are pushing decision-makers to be constructive, doing themselves their homework to put forward concrete proposals to negotiators and regulators, the scent of deal-breaking on sensitive issues is hanging in the air.

After the French pushed for excluding the audiovisual sector from the negotiating mandate in June, the US has started over the summer to draw its red lines, if one looks at the fine print of Froman's public addresses.

Earlier this month, the USTR said that the trade talks “can be a very important element of Europe’s effort to get back on a path toward growth, but it’s got to be only one piece of an overall growth strategy.”

“If TTIP is seen as a way for Europe to export its way out of its problems, it won’t have support,'’ Froman reportedly added. “It’s got to be part of an overall effort to promote reform and get their economies moving again,” he added.

Froman has made it clear in recent weeks that he will preserve the US Jones Act, a federal law that requires cargo between US ports to be transported on US ships. He also seemed reluctant to bend to EU request to lift restriction on aviation.

Responding to members of the House Ways and Means Committee, the US trade representative said: “We recognise that the coverage of air services has always been limited in the US agreements, and particularly that trade agreements have not previously covered air traffic rights.”

He also said he was concerned by the proposed amendments to the EU Fuels Quality Directive, which vows to reduce greenhouse gas emissions from transport.

Respecting differences

“If both sides do not invest heavily – politically – on this agreement, there will be many deal-breakers,” centre-right MEP Vital Moreira, chair of the International trade committee supervising the US monitoring group, said in an interview with EURACTIV.

“You can think of a dozen,” he said, mentioning sensitive areas like maritime and air transport, agriculture and GMOs, and textile. “But I prefer not to talk of deal breakers, they are more challenges.”

GMOs has been a transatlantic controversial area for years. Speaking to the US chamber of commerce in Washington, director of the US Food and Drug administration, Mary Lou Valdez, one of the key US regulators, reportedly said that “some governments evaluate the relevant science in issuing their regulation but then put a ´cultural overlay’ on top of their rules."

But added that only by better aligning respective approaches can the EU and the US gain in efficiency. “I think there are a couple of ways that  we can do that. One is really to better understand, and dig deep so that we can really leverage our respective regulatory processes,” she insisted.

Hormone-free beef for Europeans

Talking to EURACTIV, Moreira stressed indeed that both partners will need to respect their differences. “There are two things that this agreement will not change, on both sides of the Atlantic. One is our constitutions. Second, we will not change the minds of our people,” he said, but insisted that despite differences there is a way.

Taking as an example the EU-US hormone beef dispute, which has affected transatlantic trade relations for years, Moreira pointed at the constructive outcome.

“I don’t see it possible at the current stage to have hormone beef sold in Europe. But we have a market double of their own market. We are still a high-income economy – we are the biggest economy in the world. So, why not start hormone-free beef for Europeans?” he questioned.

This pragmatic approach was indeed used to address the trade dispute on chlorine-washed chicken. The hormone-free beef would probably cost more, Moreira explained, but “the higher the price, the higher the gains,” he concluded.

Leading to the October negotiating session, over 20 different technical groups are meeting this week to prepare the ground for discussion, sources said. Negotiators would then start to work on an horizontal framework. Sector-specific negotiations would probably take place later in the year or early next year, said sources.

Featuring high on the bilateral talks is regulatory cooperation. Studies suggest that between two-thirds of the gains from a future agreement would come from cutting red tapes and four-fifths from having more coordination between regulators.

“Before Christmas, they need to have parked a couple of issues, and tariffs is going to be one of them,” said Erixon. “I would say two-three sectoral mutual recognition agreements,” he added, spelling out pharmaceutical and chemicals. “It is doable.”