The US administration and many EU leaders want to finish TTIP negotiations in 2016. A detailed look at the state of play in the talks indicates that despite substantial recent progress in the negotiations, TTIP is not ripe for conclusion this year. By Iana Dreyer.
The US administration and key EU leaders are seeking to finalise negotiations of towards the Transatlantic Trade and Investment Partnership by the end of 2016. The main reason is the political calendar in the US, 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 is it at all – technically – possible to conclude talks in 2016? A close look at the state of play of TTIP negotiations indicates it’s not the case – unless both sides significantly reduce the scope of the deal.
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. Earlier attempts to address mutual trade barriers were made: in the WTO, the extensive existing bilateral EU-US dialogue system, or the ill-fated 2007 TEC. But they failed. It is not surprising that talks are difficult in TTIP.
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.
Scenario 1 was ruled out by EU member states and is not supported by major business organisations on both sides of the Atlantic. Scenario 2 requires significant progress in the negotiations in the coming weeks and months and a sense of what political compromises both sides want to make vis-à-vis each other and what political battles both 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 surprisingly as, for example in SPS matters, this 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: Washington and Brussels have built up a tight knot of interlinked issues on matters in which both sides put much at stake politically and commercially. Within the next months, it will be difficult to untie the knot without one or both parties losing face and credibility in the negotiations or the substance of the agreement.
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.
Concrete examples of issue linkage: 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.
And so on….
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. We have identified the following areas of possible convergence in 2016: 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 in the US and the EU 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.
Projected TTIP structure
1/ Market access cross-border trade in goods
Reciprocal elimination of import tariffs: industrial goods and agriculture
Rules of origin
2/ Services and investment
Sector-specific market openings/liberalisation for service providers and investors
Mobility of professionals
E-commerce and freedom of movement of data
3/ Regulatory cooperation
Establishment of a framework for regulators to talk and seek solutions to regulate while easing trade
Good regulatory practices
TBT chapter & 9 sectoral annexes
4/ Rules on economic policy making
SPS: sanitary and phytosanitary regulations and decision-making
Energy and raw materials
Labour and environment (‘sustainable development’)
5 / Institutional structure and dispute settlement system
Establishment of a joint committee and sectoral committees
Rules for dispute resolution between the two parties
Potential ‘living agreement’: follow up and future
A detailed overview of the state of TTIP negotiations, topic area by topic area, has been made available to Borderlex PRO subscribers in out latest Monthy Brief. SPECIAL OFFER: Request a non-committal free trial subscription to our and get a free copy of our Monthly Brief: email@example.com