The EU and the US want to finish negotiations for the Transatlantic Trade and Investment Partnership in 2016 but despite substantial recent progress in the negotiations, TTIP is not ripe for conclusion this year, writes Iana Dreyer.
Iana Dreyer is the Editor-in-Chief of Borderlex.eu, a news website dedicated to EU trade and investment policy.
The US administration and key EU leaders are seeking to finalise negotiations towards the Transatlantic Trade and Investment Partnership by the end of 2016. The main reason is the US political agenda, with the outgoing Obama administration wanting to wrap up at a time when nobody knows what kind of trade policy the US will adopt next year. But a close look at the state of play shows a deal is not possible unless both sides significantly reduce the scope of the agreement.
There is a deep sense of frustration with the negotiations both at diplomatic and industry level. Be it import tariffs or selected behind-the-border ‘non-tariff’ barriers to trade, both sides want to tackle matters that have been long-standing bilateral bones of contention.
Possible scenarios for TTIP this year aired so far by observers and commentators in policy circles include:
- Scenario 1: A deal on tariffs in 2016, with a commitment to continue discussing other matters at a later stage, a “living agreement” scenario with not much substance for the “non living” part.
- Scenario 2: A ‘memorandum of understanding’ on the key elements of a possible agreement in the second half of 2016, with a pledge to finalise negotiations at a later stage;
- Scenario 3: No specific pledge, with talks fading away. Their potential revival would depend on the political will of a future US administration and of some key EU capitals to pick up the discussions where they were left in 2016.
The first scenario was ruled out by EU member states and is not supported by major business organisations. The second requires significant progress in the negotiations and a sense of what political compromises both sides want to make and what political battles want to pick with specific domestic constituencies (e.g. Congress, European Parliament, farm groups…) to get a deal through back home. Scenario 3 is a real possibility.
The tight knot of ‘issue-linkage’
Three years into the talks, the ‘skeleton’ of TTIP has clearly started appearing. However, there is not yet enough flesh on its bones to make it viable for a deal in 2016, even if significant further progress is made in the coming months.
The reasons for this difficulty are both technical and political. For example, some chapters still require substantial work ahead such as the TBT (Technical Barriers to Trade) chapter and the SPS chapter on sanitary and phytosanitary matters.
Both sides aim to move significantly beyond their commitments taken so far in the WTO on these technical and sanitary matters but find it difficult to agree on common language. This is not surprising as, for example in SPS matters, it involves building bridges between the EU’s precautionary principle and the US risk-based assessment.
One of the dilemmas and difficulties of TTIP lies in the issue-linkage in which negotiators are engaged in. Broad-based negotiations that cover a wider array of issues ranging from import tariffs to car safety regulations and include rules on exports of raw materials, intellectual property, or food safety administration, and then link progress on one issue to concessions by the other party on other matters, are a well-established method of negotiating trade agreements.
But this very approach can be counterproductive. Topics such as regulatory cooperation require less haggling and ‘give-and-take’ and more cooperation, backed by binding domestic mandates given by governments or parliaments to regulators to engage with regulators from a partner country.
Despite these drawbacks proponents say issue-linkage in TTIP has allowed some discussions among regulators on both sides of the Atlantic to begin in the first place.
Yet it is this very issue-linkage that makes it complicated to seal a deal in 2016 and untie the knot without one or both parties losing face and credibility.
Among the top US priorities with the EU in TTIP is its quest for full elimination of tariffs, not least in agriculture, for more science-based risk assessment in SPS matters, more evidence-based economic policy-making, freedom of data flows, and investment protection.
The EU seeks better access to US services markets and public procurement markets (less stringent or waivers to Buy American provisions), removal of NTBs for certain foods and beverages, better protection of EU geographical indications, regulatory coherence in the financial sector, and free US energy exports (an energy chapter).
In all these matters, it will be very difficult for Washington and for Brussels to make significant concessions to their partners this year. Indeed, this involves tackling US Congress and federal governments in a crucial and dramatic election year, or to cajole individual EU member states into accepting serious concessions in agriculture, for instance.
For example, in a recent round of negotiations, the EU told the US that is was ready to discuss the elimination of import tariffs on 35-40 chemicals products if the US is ready to discuss reforming its LNG export licensing system. The US has said it was ready to consider EU requests to see it eliminate tariffs on autos and to liberalise government procurement, if the EU accepts eliminating tariffs on agricultural products.
The EU says no agriculture tariff liberalisation if no progress on geographical indications and public procurement. The US has conditioned discussing EU requests to liberalise telecommunications to the EU starting a conversation on free data flows.
Several sources close to the thinking in Washington have indicated that, should the US accept either to keep out investment protection provisions altogether, or to sign on to the EU’s idea of an investment court (to replace old-style investment – or ISDS), the EU would have to make a significant concession in another area of talks.
What both sides agree on – and don’t
If the negotiating process continues as it has now, only very few topics – and commercially and politically not the most salient ones – are likely to be ready for adoption in 2016. Possible convergence falls on customs and trade administration; trade remedies; domestic regulation (services); mutual recognition of qualifications of architects and auditors; delivery services; investment (liberalisation); regulatory good practices; mutual recognition of good manufacturing practices in pharmaceuticals; small-and-medium-sized enterprise chapter.
Though far from insignificant, these areas do not provide sufficient substance for an agreement, and adopting them doesn’t make much sense if other key issues, namely bread-and-butter market access matters (tariffs, public procurement, services and investment, NTBs) are not resolved.
Most importantly, discussions on the institutional architecture of the whole agreement are still in early stages. The fate of financial services in TTIP is yet unclear. The contours of a framework for the extensive regulatory cooperation objectives both parties have set out in 2013 are still missing. Even if the political will were there to finalise these institutional matters this year, time is running out to ensure a functioning framework can be in place late 2016.
All in all, leaders need to start thinking now on where and when they want TTIP to ‘land’ and what areas they are ready to accept potentially giving up on, or decide on, at a later stage.