WASHINGTON – The United States and the European Union have officially started talks on what could be the world’s largest free-trade agreement, but opposition to the deal from both sides of the Atlantic promises that negotiations will not go smoothly.
The Transatlantic Trade and Investment Partnership (TTIP) seeks to remove trade barriers between the EU and the U.S., including investment rules, regulatory restrictions, and tariffs.
The two major trading partners already have very low tariffs, on average 4 percent, so what is left is more complex because it has to do with the reduction of non-tariff barriers (NTB).
While seemingly pedestrian, NTBs consist of customs procedures and behind the border regulatory restrictions, such as import quotas and government-procurement rules. NTBs will be at the center of negotiations because they can either increase the costs of doing business for firms, or they can restrict market access.
Under the current system, a product made in Spain goes through the various regulatory barriers to bring it to the marketplace. Then, it has to go through another set of hurdles to reach the U.S. market. Under the TTIP, both sides would agree to mutually recognize the other’s systems thereby eliminating the redundant hurdles.
The most ambitious aim of the transatlantic deal includes moving both sides towards greater regulatory convergence: harmonized regulations in the pharmaceutical sector, and common norms and standards in the service sector. By removing all tariffs on goods and harmonizing regulatory standards for production, the two regions will be able to create one large market for their goods and services; or, at least, that is the expectation from both sides.
Proponents of TTIP say the gains of broad regulatory harmonization could amount to an economic boost of more than $100 billion a year in the U.S., and the EU could benefit by $150 billion a year. The EU is the second most important destination for U.S. exports, representing 19 percent of total exports. It is also the second most important import partner, supplying 17 percent of total U.S. imports. The United States and Europe together generate some 40 percent of the world’s GDP.
Research from the European Commission shows the cost of dealing with bureaucracy can add the equivalent of tariffs of 10-20 percent to the price of goods. According to an independent study by the London-based Centre for Economic Policy Research (CEPR), 80 percent of the economic benefits of the TTIP would come from cutting costs imposed by bureaucracy and regulations, and liberalizing trade in services and government procurement.
Nevertheless, some are already questioning whether the TTIP’s economic benefits will be evenly shared.
A survey commissioned by Germany’s Bertelsmann Foundation expected U.S. incomes would rise 13.4 percent per person thanks to the TTIP, whereas those in Europe would only increase 5 percent. Even among EU member states the trickle-down effect is likely to be uneven with the United Kingdom’s economy likely to grow 9.7 percent while that of France would expand a mere 2.6 percent, the study found.
Many experts say the TTIP faces long odds because of a range of problems, including agricultural and financial rules. In addition, revelations that the U.S. bugged EU offices and monitored emails and calls of ordinary Europeans almost ended the talks before they had even begun.
Trade negotiations have been complicated by European outcry over domestic and foreign surveillance programs carried by the National Security Agency (NSA). French President Francois Hollande called for the suspension of transatlantic trade talks one week before the talks were scheduled to begin. Hollande said there would be no negotiations without guarantees that spying would stop “immediately.”
Brussels warned Washington recently in a letter that it might reconsider two important data-sharing deals – agreements to share airline passenger data and SWIFT banking details – unless they get a commitment from the U.S. of “full compliance with the law” in its surveillance programs. Nevertheless, the data issue will be off the table in the official trade talks.
Meanwhile, a U.S.-EU working group on data protection and privacy also started its work, according to remarks by EU President Jose Manuel Barroso.
Even before the NSA scandal, national concerns threatened to derail the negotiations.
The French government expressed willingness to exercise its veto against any agreement that does not protect the country’s film and music industry. France demanded that state support for its film and television industry be excluded from the talks. Subsidies for filmmakers and other artists are currently allowed under the “cultural exception” to international trade rules for the sake of preserving national and local culture.
Following 12 hours of talks in June, the EU agreed to exclude audio-visual services from the initial negotiations, but the European Commission, the region’s trade representative, will be able to make recommendations on additional negotiations.
Although opposition so far has been stronger on the European side, American groups have started to voice concern about the trade agreement.
American and European civil society and union groups sent a letter to President Obama on Monday warning him about the dangers of such an agreement.
“A transatlantic agreement that is little more than a vehicle to facilitate deregulation would not only threaten to weaken critical consumer and environmental safeguards, but also conflict with the democratic principle that those living with the results of regulatory standards must be able to set those standards through the democratic process, even when doing so results in divergent standards that businesses may find inconvenient,” the letter said. “Thus, we are highly skeptical that an agreement focused on regulatory ‘harmonization’ will serve consumer interests, workers’ rights, the environment, and other areas of public interest. Rather, it could lead to lower standards and regulatory ceilings instead of floors.”
Top Senate trade officials have warned they would hold any free-trade agreement between the U.S. and the EU to rigorous demands that American companies see clear benefits. Senate Finance Committee chairman Max Baucus (D-Mont.) and ranking member Orrin Hatch (R-Utah) said that European nations would have to back off from some agricultural restrictions and other regulatory issues to move the negotiations forward.
“With the American people still reeling from the recent recession, a strong and aggressive trade agenda would provide a real opportunity for our job creators, our farmers and our workers,” Hatch said. “A comprehensive trade agreement with our European allies could stimulate economic growth on both sides of the Atlantic while creating tremendous new export opportunities for U.S. workers.”
Hatch expressed his approval of the trade deal talks and cautioned that “it ultimately won’t matter unless these negotiations can be concluded and enacted into law.”
While the president and his trade representative do the actual negotiating, Congress has to approve any agreement for it to come into effect. That means the Obama administration will not have an easy time concluding the TTIP unless Congress grants the president Trade Promotion Authority (TPA), which is more commonly known as “fast-track authority.” Under fast-track authority, Congress will hold any trade agreement the president negotiates to an up or down vote. Members of Congress cannot offer amendments, which provides an assurance to trade partners that the package agreed to at the negotiating table will remain the same.
U.S. Trade Representative Michael Froman said the Obama administration is “ready to engage” with lawmakers to win fast-track authority to push forward the trade agreement, The Hill reported.
“It is imperative that the president show some real leadership on trade and begin working with Congress in earnest to renew Trade Promotion Authority (TPA). Without TPA, it is very hard to see how we can negotiate a strong trade agreement with Europe,” Hatch said.