The Accident Report – Getting TTIP Back on Course

by Hosuk Lee-Makiyama, J. Bradford Jensen, J. Robert Vastine, 
May 2015

It was launched with the best of intentions and highest of ambitions – the Transatlantic Trade and Investment Partnership (TTIP) was embraced by President Obama and every European head of government as the world’s two largest economies fulfilling their destiny. UK Prime Minister David Cameron called it ‘the most important trade agreement of all time’. USTR Michael Froman pledged to finalise the agreement quickly: on ‘one tank of gas’. But indeed, the optimism soon waned as the parties became engaged in the usual effort to achieve tactical advantage. Longstanding irritants that had derailed previous attempts to creating a transatlantic market space resurfaced. New controversies like investor-state dispute settlement (ISDS) emerged, but so did imaginary ones, like how TTIP might force the British healthcare system to privatise.

The post-World War II commercial relationship between Europe and the US has a long history of achievement and of false starts. Joint efforts to jumpstart work on this new agenda like the New Transatlantic Agenda and Transatlantic Business Dialogue (1995), and the Transatlantic Economic Council (2007), did not produce meaningful results, leading to frustration and a deep scepticism on both sides that another European-US effort – like TTIP – could possibly succeed. Yet, as this new partnership negotiation opened in July 2013, negotiators went about their business as they would in organising an ordinary negotiation with a lesser power. In other words, the stage was set for an accident at the outset. After almost two years of negotiations, the results are plainly discouraging and worse, political support for TTIP in Europe has badly eroded. How did we arrive at this state of play?

Market Access

TTIP was destined to get stuck in a ditch almost from the start. Like all standard FTAs, the negotiations began with an exchange of offers. The EU made a strong tariff offer covering 95 percent of its tariff lines. The US answered with an offer covering 67 percent of its tariff lines. Commission officials reacted with shock, openly taking the US move as a blatant affront. To the US, this offer was a standard opening move in goods negotiations, simply a usual practice in an FTA negotiation. US officials pointed out that starting ‘low’ would give it leverage to obtain higher quality in the EU offer. In a ‘partnership’ that trumpeted the goal of zero tariffs, the US approach seemed chary, though it makes sense in the context of a traditional FTA parley. Moreover, the European side had refused to agree to a benchmark – a pre-agreement between the negotiators to give an offer a certain threshold, presumably over fears of being bound by a benchmark that would force it to open up EU agriculture tariffs in the first round.

EU vexation at this contretemps on goods was shortly reflected in its stance on services. The EU announced that it would not table offers on financial services as ‘retaliation’ for the US’ refusal to bring financial services regulation into the discussion. To this day, the EU has not tabled a text for services negotiations, though the EU has agreed to a solid services element in its other FTAs. Overall on services, the US and EU market access offers were based on those the parties tabled in their previous bilateral FTAs and the Doha Round. It is a tired, familiar list: the US must remove barriers to coastal maritime trade and civilian aviation markets; the EU must remove cultural barriers. Despite these limited openings, services account for almost 40 percent of transatlantic trade, an extraordinarily high volume that reflects the naked fact that in the service sectors there are few trade barriers, and services trade is robust – in the vast majority of the sectors where trade is open.

Sensitive issues

We do not suggest that the most able and seasoned negotiators of this generation might have been poorly prepared. However, neither the EU nor the US were conditioned to negotiating with a party of equal size. Both entities had been negotiating with Asia-Pacific and Central American counterparts based on blueprints modelled after their own regulations. These model FTAs are valuable for opening up trade barriers in markets like Korea, but in the end do not address problems in transatlantic trade.

As in all FTA negotiations, each side has its set of politically sensitive issues. In an attempt to appease a sceptical public, Europe, more than the US, has tied itself to the mast. Along the road, some European leaders have publicly asserted that under no circumstances will they allow TTIP negotiations to affect the EU’s GMO or privacy regulations. Since the outset of this venture, the political climate in Europe has changed. Though member states are acutely aware of the importance of trade to their economies, Germany and many other member states are governed by fragile coalitions that shy away from unnecessary political risks. TTIP negotiations stimulate sensitive issues – such as audio-visuals, healthcare, agriculture, internet, and energy – when European governments are at their weakest.

Other much deeper political issues have led to the skid into the ditch – the revelations of US electronic surveillance and wiretapping coincided with the first round of TTIP talks, resulting in some EU Parliamentarians even calling for postponing the talks. This had a pivotal, negative effect on politicians’ willingness to commit their political capital in the TTIP negotiations. The contentious and painstakingly slow overhaul of the EU General Data Privacy Regulation (GDPR) had already put a hold on the talks on cross-border data flows in TTIP. It is simply unimaginable that an FTA between the world’s most data-dependent services economies would not secure the right to free flows of data, as both the EU and the US have done in prior FTAs.

Europe’s decision to open up public consultations on ISDS gave the opposition space to congeal public opinion against it. A large bloc of special interests, and potentially also third countries, feel threatened by the prospects of a closer economic and political co-operation between the EU and the US. Anti-trade forces appear better organised and possibly even better funded than business groups, demonstrating their potency in both the European and national Parliaments.

Finally, there is the troubling issue of transparency. On both sides the idea that trade negotiations are unnecessarily private, or secret, has prevailed, even among some of our most august intellectual leaders. In some ideal world the idea that all texts should be publicly available sounds good but is unworkable. Legislators in Europe have demanded public disclosure of negotiation texts during on-going negotiations, although it is the outcome that must be justified exhaustively to the public and legislative bodies. As a result, the separation of powers between the executive and the legislative is blurred.

Conclusion – Getting TTIP back on course

The vision of the TTIP is still valid though it may initially have been expressed in overblown rhetoric. It is not time to downsize the negotiations. Rather it is appropriate to make a ‘fresh start’ as Commissioner Malmström and Ambassador Froman have suggested. What are the elements of this new start?

The first element concerns a common understanding of ambitions. Are the parties negotiating a regular FTA, or a new form of an economic partnership going beyond any existing precedent? The level of ambition must be clearly understood by both parties. Then a negotiation approach must be chosen that fits the purpose. If the level of ambition goes beyond a regular FTA, the negotiators must look to negative lists, full coverage, and equivalence at the onset rather than ‘best offers’, positive lists, and finding a middle ground between EU and US template FTAs. Both sides must agree on a common level of ambition, and each side should consider a bold new offer according to that ambition – as a confidence building exercise. The party that fails to live up to that ambition must also carry the blame.

The second element concerns political leadership and mobilising support. Trade negotiations require political engagement on the highest level. Mere declarations do not work – one only needs to recall the repeated, futile, and ultimately hollow calls by political leaders to conclude the Doha negotiations. The political leadership needs to share the urgency embraced by the trade negotiators, and ultimately take ownership of the negotiations. In the end, the question comes down to: Who is willing to pay for TTIP? Ultimately, either party must want something from the other, and show willingness to offer one of its ‘holy cows’ in return.

The last element concerns the overarching objective of TTIP, which must be approached as strategic in its purpose. But the strategic imperative of TTIP is not in hard geopolitics and economic statecraft as in the Asia-Pacific. As we said above, the TTIP can be the third pillar of a new global economic governance. Together with TPP and EU-Asia agreements, they can work against the current trajectory towards unilateralism and hard mercantilism. Having the world’s two dominant economies as signatories, TTIP should be the most comprehensive and sturdiest of these three pillars – not the weakest.

A longer version of this piece first appeared in the Georgetown Economic Policy Vignette.

J. Robert Vastine is a Senior Industry and Innovation Fellow at the Georgetown Center for Business and Public Policy.

Bradford Jensen is a member of the E15 Expert Group on Services. He is Professor of International Business and Economics at the McDonough School of Business at Georgetown University, a Senior Policy Scholar at the Georgetown Center for Business and Public Policy, a senior fellow at the Peterson Institute for International Economics, and a research associate of the National Bureau of Economic Research.

Hosuk Lee-Makiyama is a member of the E15 Expert Group on the Digital Economy and the Task Force on Regulatory Coherence. He is the Director of the European Centre for International Political Economy and a fellow at the Department of International Relations of the London School of Economics.


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