Part I
Anthony Luzzatto Gardner1
(1)
London, UK
Anthony Luzzatto Gardner
On October 19, 2015, I found myself in one of the lecture halls of the College of Europe in Bruges to speak about the negotiations to conclude a Transatlantic Trade and Investment Partnership (TTIP) agreement. At the same event earlier that day, EU Commissioner for Trade Cecilia Malmström had to interrupt her presentation after several minutes when a dozen people stood up to sing multiple verses from the hit musical Les Misérables: “Do you hear the people sing?/Singing a song of angry men?”
The Commissioner remained, as always, smiling and composed. The audience had to regroup in an adjacent lecture hall before the event could proceed. My speech regrettably did not feature such a performance, but on the way out of the lecture hall I picked up a copy of the flyer: “Sing Away the TTIP.” Similar singing protests interrupted many other TTIP events, including one hosted by the Transatlantic Business Council in February 2016 featuring a speech by our unflappable chief negotiator Dan Mullaney. Belgian Foreign Minister Didier Reynders and German Minister of the Economy Sigmar Gabriel also enjoyed separate free concerts.
This was merely one of the varied and inventive techniques deployed by the anti-TTIP activists. Brussels and many other capitals were plastered with “Stop TTIP” stickers and graffiti. In July 2016, dozens of activists from the heretofore unknown Ensemble Zoologique pour la Libération de la Nature disguised themselves as animals armed with vegetables, flowers, leaves, and branches, blocked entry to the negotiation center and pelted the negotiators with trash. On several occasions during the negotiations, I had the pleasure of seeing demonstrators dressed as giant chlorinated chickens and Trojan horses. Rallies usually featured banners about “frankenfoods” such as hormone-treated beef and genetically modified corn.
I always knew that TTIP would be a big challenge. But I thought then, as I still do now, that it was one of the most significant opportunities ever to deepen the US-EU economic, and especially political, relationship. It was a rare opportunity to boost transatlantic growth, set a gold standard for global trade deals that would enshrine our high standards in many areas, and promote regional and multilateral trade liberalization.
When TTIP was launched, the US and the EU together represented 60% of global GDP, 33% of world trade in goods, and 42% of world trade in services. TTIP was one of the main reasons that I had so enthusiastically accepted the appointment as US envoy to the EU and I had put it at the top of my agenda, including in my Senate confirmation hearings. However, the conditions for TTIP in Europe were already difficult upon my arrival in 2014 and became tougher in 2015. Organizers of the “Stop TTIP” campaign collected over 3.2 million signatures from 23 member states in the space of one year. That was triple the number required for a European Citizens’ Initiative, a mechanism introduced by the Lisbon Treaty to enable citizens to call directly on the European Commission to take legal action.
The widespread resistance to TTIP in Europe surprised many Obama administration officials. In contrast, the negotiations were greeted positively in Congress and with a collective yawn by the US public, partly due to the focus on the trans-pacific free trade agreement, but principally because the idea of negotiating an agreement with a partner that shares our high standards (and does not pose a risk of low-wage competition) was largely uncontroversial.
Early Clashes over Dispute Settlement
One of the early flash points was over investor-state dispute settlement (ISDS). In a nutshell, ISDS refers to treaty-based protections granted to foreign investors by countries that want them to invest. The protections include the right to sue the host state before an international arbitration tribunal if it engages in an illegal and highly damaging action that prejudices the foreign investor, such as expropriation. This rather arcane issue attracted widespread (negative) attention, even in the popular media.
I found the controversy over ISDS deeply frustrating because many of the criticisms were simply misinformed. The whole point of the measures was to depoliticize disputes (that had all too often been subject to gunboat diplomacy in the past) and therefore to create a predictable environment for investors to invest and create jobs. Some critics falsely warned about a tsunami of investor claims, ignoring the fact that there have been fewer than 35 such claims on average per year for the past decade. The number was growing, but in line with global cross-border investment.
It was hypocritical for Europeans to claim that the US was inflicting ISDS on them when European states had negotiated as many bilateral investment treaties (BITs) incorporating ISDS provisions as the rest of the world combined. The opposition to ISDS in Germany was particularly bizarre because Germany had concluded 136 BITs, more than any other country in the world, over the past 60 years. As of 2015, investors from the EU were responsible for more than half of all known ISDS cases.
It was wrong to argue that ISDS favors investors; to the contrary, most cases are won by states. And in those cases where investors have won, they typically have recovered 10% on average of the damages they have claimed. Many of the cases regularly invoked by ISDS critics involved cases that have been filed and not yet decided or represented highly unusual and extreme outcomes. There was no evidence to suggest that ISDS interfered with a state’s sovereign right to regulate by preventing it from changing legislation and offering investors an avenue to sue whenever their expectation of making a profit had been undermined. It was wrong to assert that ISDS only served the interests of multinationals, as many small and medium-sized enterprises (SMEs) also benefited from investment protection; they were arguably more needy of such protection because they typically have fewer political connections and resources to sue in national courts.
Above all, it was absurd to claim that ISDS is a “post-colonial” tool to protect investments in developing countries and unjustifiable in the case of investments in developed countries with advanced legal systems. EU member states have signed roughly 200 intra-EU BITs; Germany has signed 14 with other EU member states and five with non-EU members of the Organization of Economic Cooperation and Development (consisting of highly developed economies). In three-quarters of the 117 known cases where an EU member state has been sued under ISDS provisions, another EU member state was the complainant.
Ireland has thrived thanks to huge foreign investment without ever having to agree to ISDS because of a well-respected legal system (and low tax regime). Nonetheless, even European investors believe that investment protections are necessary when investing in some member states with weak legal systems. Some of the “newer” EU member states had decided, soon after their liberation from the Soviet empire, to offer very favorable investor protection to attract investments, and they had gotten the benefit of that bargain.
The critics were right to point out, however, that some of the older BITs containing ISDS had been poorly drafted and subject to abusive behavior by investors. The answer, of course, was to improve the drafting, improve the transparency of proceedings, enable greater public participation, and shut down the possibility of abuse. We felt that the 2012 United States Model Bilateral Investment Treaty, the fruit of a multiple-year review with a wide range of stakeholders, did precisely that. One of the ironies of the opposition to ISDS in TTIP is that without TTIP those older European agreements would remain in place, including nine with the United States.
The German Puzzle
Ground zero of the opposition to TTIP, and specifically to ISDS, was in Germany, Austria, and Luxembourg. That was rather counterintuitive. Germany, Europe’s export powerhouse that had become rich through trade and could become richer yet from increased transatlantic commerce, should have been the main cheerleader for the deal. German unemployment was very low—less than 5%—and its current account surplus a staggeringly high 8% of GDP. As a result of TTIP, German exports and corporate profits, including in the rich web of SMEs, would surely rise in the aggregate. Nearly every serious economic projection showed that the gross domestic products of member states in Europe, and especially Germany, would rise materially thanks to an ambitious trade agreement.
And yet support for TTIP in Germany sank like a stone—from 55% in 2014 to 17% by the fall of 2016.1 By that time, roughly 70% of Germans had a negative view of TTIP, double the average in most other European countries. This counterintuitive situation might be due in part to the fact that many Germans were so content with the status quo that they viewed any significant trade initiative as purely downside risk.
Moreover, an overwhelming part of the German public had been misled to believe that the agreement would only enrich the multinationals at the expense of consumers, lower workers’ wages, compromise data and environmental protection, and weaken citizens’ rights. It was also widely accepted that the agreement would substitute the EU’s sacred “precautionary principle”—under which products must be proved 100% safe before they can be sold—with the US science-based approach that allows products to be sold unless there is proof that they are harmful.2 That touched the raw nerve of fear that TTIP would undermine product safety and food quality by forcing discerning European consumers to eat foods stuffed with hormones and treated with chemicals.
According to one report released in the spring of 2014, only 4% and 2% of Germans trusted American auto safety and food standards, respectively (as opposed to 91% and 94% trust in German standards).3 Despite this very low trust, German tourists in the United States were not being massacred on American roads and in restaurants due to jerry-built cars and infected foods. The reality, as confirmed by multiple studies by respected European and American researchers, was that neither side can claim to enforce stricter precautions against health, safety, and environmental risks than the other.
Even more troubling, and surprising, was that support for free trade itself was plummeting in Germany. According to the German newspaper Die Welt, less than half of the German population had a positive view of free trade in April 2016, down from 88% two years earlier. “Anti-free trade views have become respectable.”4 Anti-TTIP protests brought hundreds of thousands of protestors to the streets of Germany, including 250,000 in Berlin in October 2015, something not seen since the peace protests of the 1980s. Who ever thought trade could be as exciting as the Cold War and the threat of nuclear war?
The growing negativity toward TTIP was not limited to Germany, Austria, and Luxembourg. Opposition to TTIP was also growing in the United Kingdom. In February 2016, UK Labour leader Jeremy Corbyn described TTIP in the House of Commons as a threat to national sovereignty, workers, consumers, health, and the environment.5 Labour Shadow Chancellor of the Exchequer John McDonnell said the deal would bring about a form of “modern-day slavery.”6 UK unions were obsessed with the notion that TTIP would undermine the National Health Service and force the privatization of public services. One of the Scottish Members of the European Parliament explained to me that grannies were showing up in her constituency in remote towns with anti-ISDS buttons on their blouses.
Belgium proved to be a particularly difficult country due to its highly decentralized political system. In addition to the Belgian national parliament, there are five sub-federal parliaments—for the southern Walloon region, the northern Flemish region, the Brussels region, the French-speaking community, and the German-speaking community (representing 70,000 people). Each of these has the power to block the federal government’s approval of free trade agreements in certain circumstances. In mid-2015, all the sub-federal parliaments, except those representing the economically successful Flanders region and the Flemish-speaking community, issued solemn resolutions against the EU-Canada Comprehensive Economic and Trade Agreement (CETA) that was nearing completion.
The Walloon parliament persisted with its objections to CETA until the very last moment, nearly killing the deal in the spring of 2016 against the wishes of the remaining 99% of the EU population. While its objections were ostensibly grounded in concerns about ISDS and social, health, and environmental standards, the real reason was purely domestic: A majority of the Walloon parliament consisted of fringe parties that delighted in destabilizing the federal government led by centrist Prime Minister Charles Michel.
The extraordinary situation in Belgium was not unique. Almost 1900 cities and municipalities declared themselves to be “TTIP-free zones.” Many of the 19 city councils in Brussels, each representing roughly 50,000 people, went to extraordinary lengths to criticize the negotiation. When I heard during a dinner organized for me in Amsterdam that the city council had also declared itself to be “TTIP-free”, I nearly fell off my chair. The city’s entire history was linked to free trade; it was a monument to the entrepreneurial genius and free-trading spirit of the Dutch people.
The spreading opposition to TTIP (and CETA) was also striking because the EU had been negotiating free trade agreements for many years (including a recent significant deal with South Korea) without popular resistance. The EU free trade deal with Japan, concluded in 2018, and covering a market of 600 million people and 30% of global GDP, was negotiated and finalized with barely a ripple of dissent. Anti-American sentiment was clearly one reason for the starkly different public reaction to TTIP.
While the US and the EU had clashed during prior decades on trade issues, especially over agriculture, they had collaborated intensively on international trade liberalization. In December 2015, for example, the two had been instrumental in expanding the product coverage of the 1996 Information Technology Agreement that eliminated tariffs on $1 trillion worth of trade of IT products. The expansion, covering 9–13% of world trade, would increase global GDP by $190 billion per year, according to experts.
In July 2014, the US and the EU played a key role in launching negotiations on an Environmental Goods Agreement (EGA) to eliminate tariffs on many “green” goods crucial for environmental protection and climate change mitigation, such as solar panels, wind turbines, and water treatment equipment. The negotiations were put hold at the end of 2016, due to Chinese demands and the change of US administration. And since the spring of 2013, the US and the EU spearheaded the Trade in Services Agreement (TISA), covering about 70% of the world’s services economy in such areas as financial services, telecoms, e-commerce, health care, transport, and mobility of professionals. These negotiations are also on hold due to the change of US administration.
The US and the EU have also cooperated on a variety of unfair Chinese trade practices, including steel oversupply, industrial subsidies, and intellectual property theft. This is one of the few areas in trade where the US and the EU continue to cooperate intensively (together with Japan) under the Trump administration.
So why was TTIP immediately engulfed in European controversy? Part of the reason is that the objectives of the negotiation were so ambitious. Vice President Joe Biden liked to say that “If you’re going to be crucified, you might as well do it on a big cross.” That also applied to trade deals. Well, we collapsed early in our walk along the Via Dolorosa, long before we ever made it to the cross.
Hoping to Be Crucified on a Big Cross
As set forth in the Final Report of the High Level Working Group on Jobs and Growth that launched the negotiations in February 2013, the negotiations aimed at making substantial progress in three areas:
market access, specifically the removal of customs duties on goods and restrictions on the provision of services, gaining better access to government procurement, and facilitating investment;
improving alignment of the US and EU regulatory systems, enhancing cooperation on setting new regulations and eliminating unnecessary divergences in existing regulations (without lowering consumer or environmental protections); and cooperating on setting rules that address emerging challenges to the global trading system, such as ensuring high-level protection for intellectual property, the environment, and workers; and
cracking down on new forms of anti-competitive behavior, including subsidies, privileges granted to state-owned enterprises, export restrictions on raw materials, and so-called “localization barriers” designed to protect domestic industries, services, and intellectual property.
Mike Froman, my dear friend and very able US Trade Representative, made clear on many occasions that TTIP had global significance: “…[it] not only enhances our mutual commitment to rules-based trade, but … enhances our ability to strengthen the rules-based system around the world.”7 It would, moreover, strengthen the US-EU global partnership and help to revive the stalled WTO talks.
In its early efforts to trumpet the ambition of the negotiation, the Obama administration repeatedly referred to TTIP as “revolutionary.” That backfired for a simple reason: It’s not what you say, it’s what people hear that counts. We thought we were describing the deal as big and exciting. But after six years of financial crisis and growing economic insecurity, later compounded by terrorism and unprecedented migration flows, much of the European public was in a “protective crouch” and in no mood for anything as scary as a revolution. I convinced Washington to describe the deal as “evolutionary”—one that would build on an already deep and beneficial economic partnership.
The $5.5 trillion transatlantic economy is the largest and wealthiest in the world, accounting for over one third of the world’s GDP in terms of purchasing power. The US and the EU are each other’s largest trading partners: US-EU merchandise trade totaled roughly $807 billion during 2018, double the level at the start of the new century. 45 of 50 US states export more to Europe than to China, in many cases by a wide margin. 55% of total US global investment outflows goes to Europe, and Europe accounts for 54% of global investment inflows into the US. Affiliates of US companies in Europe generate sales over $3.1 trillion and employ 4.8 million workers, while affiliates of European companies in the United States generate sales of $2.5 trillion and employ 4.6 million workers.8
In many of the roughly 90 speeches I delivered on TTIP in 18 of the 28 EU member states, I described an ambitious transatlantic free trade deal as debt-free stimulus for jobs and growth in a Europe starved of both. Every serious study showed that TTIP would increase exports and investments, as well as create jobs. I argued that the deal was about providing consumers with more choice and better products at lower cost. It was about ensuring access to cheaper parts and raw material inputs, especially important for transatlantic trade between members of the same or related firms. Cheaper parts and other inputs could help reduce the cost of manufacturing in Europe, inflated by high energy and labor costs. By boosting growth, the deal could help fund pensions for retirees and health, safety, and environmental protections.
Much of what TTIP was seeking to achieve, I argued, was in fact a geographical extension of what the EU had already successfully achieved in creating a single market without tariff walls in which goods and services could flow freely. Original fears that the single market would sacrifice health and safety standards in order to achieve higher growth had proved to be unfounded.
Improving reciprocal market access was an important objective in the TTIP negotiations. The High Level Working Group report had made clear that the parties would seek to “eliminate all duties on bilateral trade, with a substantial elimination of tariffs upon entry into force, and a phasing out of all but the most sensitive tariffs in a short time frame.” Tariff reductions were appropriately a key focus: Although trade-weighted transatlantic tariffs on goods average between 2 and 3%, the EU applies substantially higher tariffs, especially in agriculture, but also in industrial products, such as trucks, footwear, audiovisual products, and clothing; and the US also applies substantially higher tariffs on industrial products such as footwear, textiles, and clothing.9 Even in the sectors where tariffs are low, they can be economically significant when profit margins are slim. According to one study, a transatlantic zero-tariff agreement could boost US and EU exports to each other by 17%.10
Market access was much more than tariff elimination, however. The High Level Working Group report expressed the parties’ ambition to extend to each other the highest level of market access in services that either had granted to third parties in trade negotiations to date and to address remaining barriers while “recognizing the sensitive nature of certain sectors.” The High Level Working Group report expressed the parties’ aspiration to build on the highest levels of liberalization of investment flows and the highest standards of protection of investors against abusive state behavior that either side had negotiated with third parties to date. The report also included a pledge to offer substantially improved access to government procurement at all levels of government (federal and sub-federal) and on the basis that US and EU firms would receive no worse treatment than the other in their respective home markets.
The real promise of TTIP lay in the second category of negotiating objectives: The non-tariff barriers that constitute “behind the border” obstacles to trade, including provisions that impose unnecessary costs and administrative delays stemming from divergent regulations. These barriers were a major reason why the US was running a goods and services trade deficit with the EU of $91 billion. Nearly every study on the impact of TTIP concluded that between one-half and three-quarters of the benefits would result from the removal of these barriers.
The problem was that their removal would be exceedingly difficult to achieve: they were highly technical and touched the raw nerve of regulatory sovereignty and stirred strong emotions about health and safety standards, food, culture, and way of life. The effort at eliminating non-tariff barriers was frequently mischaracterized as a free pass for companies to dilute health, consumer, and environmental protections. The reality was rather different.
From the start of the negotiations, the parties sought to improve “regulatory coherence”—essentially the alignment of their regulatory systems—through a mutual commitment to transparency, stakeholder input, and good regulatory practices such as the use of impact assessments and the periodic review of existing regulatory measures. The reason for this focus is that US and EU regulations will continue to diverge for as long as both sides write regulations based on analysis developed from different evidence.
They also agreed to pursue opportunities to improve regulatory compatibility in specific sectors of economic importance—especially auto safety, pharmaceuticals, and chemicals. In some (rare) instances, the parties might be able to harmonize their divergent regulations if they could agree on which regulations were best. When that was unachievable, they still might be able to grant mutual recognition of their regulations where they provided identical levels of protection. While that might sound straightforward, it is in fact very hard. For decades, the US and the EU have sought to strike mutual recognition agreements in economically significant areas but ended up with rather modest agreements in such areas as marine equipment. Finally, the US and the EU might be able to agree to find that each other’s regulations provided equivalent degrees of protection, thereby eliminating the need for duplicative testing and certification costs. The parties also agreed to establish a framework to help identify opportunities for future regulatory cooperation, especially in emerging technologies.
Non-tariff barriers also include two important trade irritants. The first consists of sanitary and phytosanitary (SPS) measures to protect humans, animals, and plants from diseases, pests, or contaminants. A separate SPS chapter in TTIP would build on the key principles of the WTO, including requirements that each side’s measures would be based on science and on international standards or scientific risk assessments, applied only to the extent necessary, and developed in a transparent manner without undue delay. The second consists of technical barriers to trade (TBT)—technical regulations and standards, and procedures for the assessment of conformity with them.
SPS issues have inflamed US-EU agricultural trade relations for decades. This is a shame because the US and the EU have remarkably complementary agricultural sectors: While the former has a competitive advantage in large-scale production of commodities, the latter focuses on intensive agriculture and value-added processed food production.
During one of my early consultations in Washington, I paid a call on the US Department of Agriculture (USDA) to review the outstanding disputes. I was handed detailed lists of SPS barriers to imports that the US and the EU had recently removed for one another and additional lists of barriers that remained. The first list of successes was rather short, and it was clear that each removal of a barrier by one side had been traded against the removal of a barrier by the other side. When I remarked that this looked like a “hostage exchange exercise”, the team nodded in agreement. That has proven to be a slow, painful, and ultimately doomed approach. Discussions between US and EU negotiators on SPS issues almost always deteriorated into utterly sterile “talking point ping pong” with each side reading from prepared texts. The list of SPS obstacles contained some infuriating examples.
Although the EU and the US agreed for many years that their different approaches to testing molluscan shellfish (clams, scallops, oysters, and mussels) protected public health in a broadly equivalent manner, it took a decade to finalize a mutual recognition agreement in 2018 ending restrictions on bilateral trade. Bilateral trade in fresh fruits and vegetables is much lower than it should be. The US sells very low quantities to the EU, largely because the EU blocks imports of fruits and vegetables containing more than minute traces of pesticides, despite the fact that its limits are more restrictive than the standards accepted internationally and by the European Food Safety Agency. The US Animal and Plant Health Inspection Service, in turn, dragged its feet on approving imports of apples and pears from the EU—including from Poland even after its industry was decimated by Russian countersanctions related to its annexation of Crimea.
Whereas the EU lifted its restrictions on British beef imports in 2006 following the outbreak of “mad cow” disease in the early 1990s, the USDA published new rules on EU beef exports only in 2013, and it took over two years to inspect and approve slaughterhouses in just three EU member states to start shipping beef to the United States. At that rate, it would take 20 years before the whole of the EU is approved. To my amusement, moreover, the US has banned the sale of real French brie cheese made from raw unpasteurized cow’s milk. The Food and Drug Administration declared in 2004 that all cheeses that are not aged for at least 60 days must use pasteurized milk. To my knowledge, the French are not dropping like flies from E. coli and listeria in their brie.
But the EU was certainly no saint in the area of SPS restrictions, either. Although the European Commission had agreed to allow the use of lactic acid to remove pathogens on beef carcasses just before my arrival, it had yet to agree to the use of similar “pathogen reduction treatments,” such as the use of peroxyacetic acid (chlorine), for poultry. EU law prohibits the use of anything except water—that well-known disinfectant—as a sanitary wash for meat products, unless specifically authorized. And that was despite a clear opinion from the European Food Safety Agency that antimicrobial washes (including chlorine) for meat carcasses are effective and safe, especially against E. coli and campylobacter.
Sometimes the EU member states play the most inventive games as well. After 30 American lobsters had been found living in the wild off Sweden’s coast in March 2016, the Swedish environment ministry asked the EU to reclassify them as an invasive species, which would have resulted in a live import ban (and the loss of $140 million of US exports). They seemed few and harmless enough, with their claws still banded, which is the way US lobsters are sold. Had they been “liberated” by animal rights activists? Or had the European lobby for inferior lobsters detected a way to avoid competition? According to the ministry, their mating habits were aggressive and could threaten Europe’s lobster population through diseases and inbreeding. After my insistent prodding, the European Commission took a different view.11
A separate TBT chapter in TTIP would seek to promote greater openness, transparency, and convergence in regulatory approaches and related standards development processes. Objectives of the chapter included the adoption of relevant international standards, fewer redundant and burdensome testing and certification requirements, enhanced confidence in the parties’ conformity assessment bodies, and improved cooperation on conformity assessment and standardization issues globally.
How much progress did we make toward these objectives in three and half years of negotiations? While there was progress in some areas, the sad reality is that we fell far short of our ambitions. Reading the conclusions of the 15 negotiating rounds is like watching water boil: Much of the language is repetitive, with only discrete signs of movement. The most concrete achievement is that the parties exchanged offers to eliminate duties on 97% of tariff lines, a large majority of which would be phased out immediately upon entry into force of the agreement or phased out quickly.
The Progress Achieved
The US-EU Joint Report on TTIP Progress to Date, issued on January 17, 2017, summarizes other, more technical, areas of progress. For example, the parties built on prior progress toward defining principles of regulatory coherence and regulatory cooperation. The parties identified ways to reduce unnecessary burdens in transatlantic trade arising from redundant or duplicative product testing and certification requirements, especially in the manufacture of pharmaceutical products.
As a result of this work, the FDA and the European Medicines Agency signed in early March 2017, and fully implemented in 2019, a mutual recognition agreement on good manufacturing practices for active pharmaceutical products. This important agreement enables US and EU regulators to use inspection reports and other related information obtained during inspections of manufacturing facilities, conducted by either side, to determine whether a facility is manufacturing high-quality drugs. That, in turn, enables the parties to reallocate resources toward inspection of drug manufacturing facilities with potentially higher public health risks across the globe, especially in developing countries. This makes it faster and less costly for both sides to bring medicines to market. Work continues to expand the scope of the agreement to veterinary medicines, human vaccines, and plasma-derived medicinal products.
The parties made modest progress toward the goal of recognizing each other’s auto safety tests as providing an equivalent degree of protection to their own. And they developed a framework for regulatory cooperation to facilitate greater compatibility in future regulations. The US and EU agreed on measures to reduce red tape and delays at their borders, such as electronic filing of customs declarations. They also agreed on a dedicated chapter on SMEs that contained tools enabling them to exploit the opportunities of transatlantic trade.
But there were many more disappointments than achievements. From the US perspective, it was particularly disappointing that the EU did not table an offer to eliminate nearly all tariff lines, contrary to the clear objective of the High Level Working Group report and to the Council’s negotiating mandate to the Commission.12 The remaining 3% of tariff lines are of considerable importance to US farmers and ranchers, without whose support there is zero chance of getting a deal approved in Congress. Although non-tariff barriers (especially those impacting poultry, beef, and grain exports) were more important than tariff barriers in explaining the $12 billion and growing US agricultural trade deficit with the EU, the elimination of tariffs was nonetheless a significant negotiating objective. The EU could have pushed further on tariff line elimination while making clear that there would be no deal without agreement on all issues. Instead, it argued, to our irritation, that progress on the sensitive agricultural tariff lines would be tied to a host of other issues that were politically difficult for the United States.
The US was also irritated with the EU offer on the liberalization of services. While the US services offer was as ambitious as any it had ever proposed, the EU’s offer fell short of what it had offered in its free trade agreement with Korea, or in its negotiations on the TISA or in its free trade agreement with Canada. The US had tabled a “negative list” approach that liberalized all services sectors except those specifically scheduled, but the EU refused to do so (unlike in its agreement with Canada).
The EU argued that it would only contemplate adopting a “negative list” approach if the US provided a comprehensive list of all restrictions on services maintained by states and local entities. Not only was this unnecessary as European companies surely could inform the European Commission of any obstacles that they faced; it was also complex and costly to conduct an exhaustive audit. In the Korea-US free trade agreement, the South Koreans have been content to accept an illustrative list of such restrictions, rather than an audit.
US exceptions from the commitment to liberalize were far fewer than those tabled by the EU, both in terms of number and economic significance.13 The EU had insisted from the beginning of the negotiations on a complete carve-out of audiovisual services from the agreement. And it refused to table any offer on financial services market liberalization (on the grounds that the US side didn’t want to discuss intensifying financial market regulatory cooperation). While the US had offered to permanently guarantee EU service providers their current broad access to the US market, including at sub-federal level, the EU had reserved the ability to introduce new discriminatory measures in virtually all existing economic sectors, as well as in “new services”—defined as any service not identified by a UN classification scheme dating all the way back to 1991, before the Internet and a host of digital services.
The EU refused, moreover, even after the conclusion of the Privacy Shield Agreement in February 2016, to table text on electronic commerce, an important and growing component of transatlantic trade. And the EU slowed progress on core TBT issues, such as the ones that currently prevent US laboratories from testing products for the EU market, deny US stakeholders from participating in European standards development, and provide that European products are presumed to conform with European laws only if they meet standards developed by European standardization bodies (even if US standards are technically equivalent and globally relevant).
From the EU perspective, it was disappointing that the US refused to discuss how to make the Jones Act less restrictive. This federal statute from 1920 requires that all goods transported by water between US ports be carried on US-flagged ships, constructed in the United States, owned by US citizens, and crewed by US citizens and US permanent residents. Although international shipping from and to US ports (roughly three-quarters of the US maritime market) remains open to foreign competition, the domestic coastal market remains shut.
The US also refused to lift its equity caps on foreign ownership in the telecoms and aviation sectors. Moreover, the US tabled an offer on government procurement that barely loosened federal restrictions on foreign competitors and did nothing to increase state-level market access, and the US refused to entertain EU concerns about the protection of geographical indications on food and wine.
Progress on mutual recognition in the automotive sector proved to be much harder than anticipated. There had been high hopes that the 2011 Agreement between the US and the European Community on Cooperation in the Regulation of Civil Aviation Safety could have served as a model. It is thanks to this agreement, and its reciprocal acceptance of repair and maintenance standards for civil aircraft, that one can fly on an airplane and be confident of its safety, regardless of whether it has been serviced in the US or in Europe. If the Federal Aviation Administration and the European Aviation Safety Agency can agree to recognize each other’s certifications, why can’t the US and EU do so in the case of motor vehicles?
The economic case for the US and EU to recognize each other’s auto safety rules as providing equivalent outcomes is compelling. Bilateral automotive trade accounts for one-tenth of total US-EU trade. If the parties would recognize each other’s crash tests and related standards, auto manufacturers on both sides of the Atlantic could save up to 7% on the cost of producing each car and truck. But one of the core obstacles is that the National Highway Traffic Safety Administration (NHTSA) is restricted by its statutory authority from Congress to recognize foreign rules as equivalent only if there is supporting data. Short-cutting that authority would expose NHTSA to lawsuits from consumers. Several joint transatlantic studies found that no EU-wide database on crashworthiness—how well a car protects its occupants from injury in a crash—is as detailed as the one maintained by NHTSA. Regulators in some wealthier EU member states do, however, maintain richer data sets. Adjusting for the absence of EU-wide data, as well as radically different driving conditions, road conditions, per capita income, and vehicle types in Europe, proved to be difficult.
Crash tests weren’t the only area of auto safety where mutual recognition proved difficult. Intensive discussions between the US and the EU in TTIP only managed to identify at most 15 relatively minor areas where each side could recognize the other’s automotive safety regulations as fully or partially equivalent. Even that would have required additional evidence and lengthy rule-making procedures. Focusing on the harmonization of new regulations or standards and avoiding duplication of certification costs would have been a much more productive approach.
Some Lessons Learned
There are many lessons that can be gleaned from our failure to make more progress on TTIP. Two key lessons stand out. The first is that both sides must realize that TTIP is unlike any prior trade negotiation either has undertaken because the parties are of equal size and negotiating leverage.
The second key lesson is that such a significant enterprise will not occur without more political will. President Clinton had realized that NAFTA would only be approved if his administration was fully invested in that outcome. While President Obama and many members of his administration frequently endorsed TTIP, the president did not appear willing to invest sufficient political capital to get TTIP over the line. There were many things that the White House could have done but did not. It could have worked with Congress on US offers relating to public procurement or maritime services; it could have considered overruling the objections of the US Treasury to negotiating financial services regulatory cooperation; and it could have mandated agencies of the federal government (including the NHTSA and the FDA) to enhance regulatory cooperation with the EU.
Perhaps the president thought that it was not worth investing too much in TTIP because the Trans-Pacific Partnership (TPP) deal was bigger, further advanced in negotiations and more likely to conclude. I privately wondered whether the priorities should have been inverted. Concluding a trade agreement with a wealthy region that shares US values should be easier than concluding one with a region that includes developing countries with a weaker commitment to those values.
President Obama appeared to be convinced that the US had significant leverage with the EU. On three separate meetings with Jean-Claude Juncker, president of the European Commission, and Donald Tusk, president of the European Council, I heard President Obama point out that the EU needed the deal more than the US because the US economy was performing far better than the European economies (especially in terms of employment and growth). He also reminded the EU that it had originally approached the US with the proposal of a transatlantic free trade deal rather than the other way around. Not only was this indelicate, but it also had the predictable result of stiffening the EU’s back. And it was overtaken by events rather dramatically, as Congress failed to approve TPP before the end of President Obama’s term. When President Trump withdrew the US from the negotiations, the remaining members proceeded to conclude it successfully. European economies recovered, moreover, and the EU signed significant free trade deals with Canada, Japan, Vietnam, and the South American trade bloc Mercosur.
There was a slightly different dynamic on the European side. The European Commission and the European Council (representing EU leaders) repeatedly endorsed the negotiations in a series of solemn communiqués. To our and the European Commission’s great irritation, however, many heads of state simply couldn’t resist the pleasures of domestic politicking: Once back in their national capitals, they would be ambivalent about, or even criticize, the negotiations. Some leading members of national governments—especially Sigmar Gabriel, German Minister of the Economy, and Matthias Fekl, French Minister for Foreign Trade—were especially negative. As the European public naturally pays more attention to national news than to European communiqués, the inevitable result was that support for TTIP continued to disintegrate. If TTIP is to stand a chance of being revived, member states need to stop this Janus-faced behavior.
Politics will be even more important than usual because trust in institutions, particularly governments, is at an all-time low. Mistrust in the European Commission still runs deep in many member states, partly because some national leaders have cynically chosen to blame Brussels for all national ills rather than shoulder their responsibilities. The European Commission has also invited some of this mistrust in the past (before the adoption of greater transparency under Trade Commissioner Malmström) by treating member states, as a former commissioner told me, like mushrooms that are fed manure and left alone in the dark.
During my public appearances in Europe on TTIP, I felt that many of my messages were discounted because I was a spokesman of the US government. It reminded me of the old Zulu proverb: “I cannot hear what you say for the thunder of what you are.” The Snowden allegations certainly clouded the prospects for TTIP under the Obama administration. And that was on top of the usual caricatures that European critics of the United States have been making for decades.
Mistrust in the United States has only increased as a result of the Trump administration’s withdrawal from international agreements in which the EU has played a significant role (such as the agreement to curb Iran’s nuclear ambitions and the Paris Agreement on climate change) and its attack on the multilateral rules-based order and institutions (such as the World Trade Organization). Trust has also suffered because of the administration’s clear promotion of Brexit and its desire that the European Union should break up. The prospects of an ambitious US-EU trade deal under President Trump are low. While the EU Council approved a mandate to the Commission to negotiate such a deal, France (and several other member states) voiced serious reservations and the European Parliament’s international trade committee expressed a negative view.
The challenge is greater than distrust of governments and anti-Americanism. I discovered soon after my arrival in Brussels that the debate about TTIP was just as much about the merits of free trade and globalization as it was about a free trade agreement. Many of TTIP’s critics in Europe appeared to think that TTIP and free trade agreements in general were a way to deepen and accelerate globalization, a source of additional instability after years of economic hardship and feelings of physical and cultural insecurity stemming from migration and terrorism.
While the negative reactions to TTIP in Europe, especially in Germany, Austria, and Luxembourg, appeared counterintuitive at first blush, they actually reflected a normal human urge to slow down and seek greater control in times of change. Many TTIP critics appeared to believe that one can hit the pause button on globalization to allow companies more time to adapt. It reminded me of the hit musical in London’s West End and Broadway called “Stop the World – I Want to Get Off.” I tried to explain, with mixed success, that globalization is a reality, whether we like it or not; that free trade agreements are actually a tool to shape globalization, especially when they are concluded between parties committed to high standards of consumer, health, labor, and environmental protections; and that many of the ills ascribed to globalization, including job losses and the decline of manufacturing, are largely the results of technology and automation. The choice is not between accepting or rejecting globalization; it is between whether we will shape it or be shaped by it.
Failures to Communicate
One of the core problems afflicting the negotiations was that neither side really understood the drivers of public emotions. Both sides were so engrossed in the negotiations as a technocratic exercise that they failed to understand the need to engage in a professional political campaign. Such a campaign should have started with focus groups, targeted messaging and, above all, emphasis on narratives propagated through social media. It would have been far less timid, especially in attacking myths propagated by non-governmental organizations that saw opposition to TTIP as a great business model to attract financing. Moreover, a professional campaign would have emphasized emotions more than dry statistics.
I repeatedly saw that when our facts collided with the passion of many critics, the latter almost always won. Similarly, complex truths will nearly always be trumped by simple falsehoods. While it was, of course, unacceptable to engage in passionate falsehoods, it was possible to focus on narratives. To be fair, the European Commission and the Office of the US Trade Representative did ramp up their efforts to produce real-life stories, targeted to specific countries and sectors, especially about how the deal would benefit SMEs; but the efforts were late and under-resourced. Finally, such a campaign would have featured far more energetic and earlier efforts by all businesses to communicate the advantages of the deal for their employees.
In my judgment, it was a communications error to over-hype the deal. Both sides over-sold the potential of regulatory cooperation when it should have been clear that this would be extremely challenging. Each side allowed rhetoric to run way too far in front of reality.
The United States repeated the mantra that the deal could be concluded on “one tank of gas” by January 2017, less than four years after its launch. That jarred with the reality that the US and EU had been discussing a transatlantic free trade area on and off for over a decade; efforts by businesses to propose specific measures eliminating barriers to trade, such as the Transatlantic Business Dialogue formed in 1995, had yielded little progress; and the Transatlantic Economic Council, a cabinet-level body formed in 2007 to promote US-EU economic cooperation, had also been of marginal utility.
The European Commission also over-hyped the deal: It frequently repeated, for example, that it would increase EU GDP by 0.5% and put €565 of disposable income in the pockets of every European family.14 The claim, based on optimistic assumptions at an early stage of the negotiations when we had no idea of the deal’s final contours, simply invited skepticism. Many critics thought that the benefits were not only more modest, but also uncertain and remote, and would in any event be appropriated by multinationals and the professional classes that already benefit from globalization. By allowing the rhetoric to outstrip the reality of slow progress in the negotiations, we undermined our own credibility. And, perhaps most dangerously, we presented TTIP as the most important determinant of the US-EU relationship, when in reality the relationship is far deeper and broader. Many joint projects—including cooperation on the digital economy and the Internet of Things—are economically far more significant.
Rather than sell uncertain projections, it would have been wiser to focus on the jobs and revenues that regions, cities, and local communities derive from transatlantic trade, as well as to describe how prior trade deals had demonstrably led to export growth and job creation (at a higher income level). Since NAFTA was implemented 22 years ago, the United States has signed 17 other bilateral free trade agreements. Exports to those countries are growing twice as fast as the average. Moreover, exporting firms in the US pay a wage premium of between 13 and 18% compared with non-exporters.15
Our trade balance in goods with 14 of those countries improved following the agreements. While the trade deficit with South Korea has worsened following the Korea-US free trade agreement, there are numerous reasons for this that are unrelated to the deal. One recent study has concluded that “Modern deals and old NAFTA-style deals are as night and day. And so are the results.”16 The Korea-EU free trade deal has also proven beneficial to the EU, with exports of goods and services up by 77% and 82%, respectively from 2010 to 2018. During that period, the EU’s trade in goods went from a deficit of €10.5 billion in 2010 to being broadly balanced.
In order to address the cynicism, it would have been wise to acknowledge that free trade agreements also produce losers, not just winners. It is meaningless to talk of “aggregate” gains to society according to economic theory; to those who lose out, it is of cold comfort that society benefits on average. Critics of free trade are right to point out that the benefits have too often been privatized, while the losses have been socialized.
Another major reason why the TTIP negotiations had difficulty achieving traction is that many critics considered them to be secretive and, therefore, suspect. Some of the most vocal criticism of TTIP’s opacity came from those who attacked the substance of the negotiations. This was obviously a contradiction: How could one hate a deal that one allegedly knew nothing about? I was also irritated by those NGOs who demanded transparency from the US and EU on TTIP but whose own financing remained totally opaque. I suspected that some of them were receiving money from Russia; the Kremlin had made its hostility to the negotiations very clear and had shamelessly propagated disinformation about them through Russia Today, Sputnik and troll farms.
The proponents of the deal correctly argued that TTIP was the most transparent trade negotiation in history: There was an enormous amount of publicly available information, contained in government Web sites, briefings, and speeches, as well as consultations that each side was conducting with its legislatures, businesses, and civil society through many advisory committees. The US felt that its system of domestic consultations during trade negotiations worked well. More than 600 individuals, representing a broad array of interest groups, had security clearances allowing them to see and comment on all textual proposals before they are tabled. It was difficult to grant the wider public more transparency about our proposals than we were already granting to this group.
The proponents of the deal also correctly argued that the ratification process would ensure democratic accountability and that negotiators need to be able to discuss proposals in confidence in order to explore trade-offs, just as in any business negotiation. Criticism that proposals to enhance US-EU regulatory cooperation would give multinationals the opportunity to lobby in secret and subvert parliamentary democracy were wide of the mark; to the contrary, these proposals were aimed at enhancing the quality of legislation by promoting greater transparency, public participation, and accountability.
Nonetheless, the United States was on the back foot on the transparency debate, especially once the EU started publishing its textual proposals on its Web site, as well as explanatory documents regarding its negotiating objectives and summaries after each negotiating round. At first, we only permitted a few select parliamentarians and officials from the European Parliament to gain access to TTIP “consolidated texts” (combining the parties’ textual proposals for each chapter) in a reading room housed in the European Commission. We agreed in December 2014 to provide EU member state officials access to these texts on a “need to know basis,” but only under extremely restrictive conditions. For example, the officials had to visit US embassies, during two days each week by appointment only and for only two hours per visit; only two officials would be allowed to review documents at a time and they would be monitored by US embassy personnel.
Any possible security reasons for these procedures were significantly outweighed by the considerable ill will that they generated, especially among senior officials. In December 2015, the US agreed to allow these approved member state officials, as well as all national parliamentarians, to have access to the consolidated texts in reading rooms housed in approved ministries. Moreover, all members of the European Parliament would have access. But all these measures were discounted because they had come late and only under pressure.
While we were losing the transparency debate in Europe, we were failing to exploit some key tools in our arsenal to convince the European public about TTIP’s attractions: We should have put even greater emphasis on the deal’s geopolitical aspects and on the advantages for SMEs.
Public communication about the benefits of TTIP focused too heavily on the Trade and Investment components and too little on the Partnership component. That was a pity because one of the very few arguments that gained widespread traction, both geographically and across the political spectrum, was that properly negotiated free trade agreements are a tool to shape globalization as we—in the advanced economies and democracies—want: at a high level of protection for consumers, health, and the environment. Regional agreements often encourage other countries to embrace the same high standards and principles; history has shown that they stimulate multilateral trade liberalization, as demonstrated by the role of NAFTA in resuscitating the Uruguay Round.
The rules-based open trading system is increasingly competing with state-directed mercantilist models. If we don’t set the rules of global trade together during the next five to ten years, then other countries whose weight in the global trading system is rising fast will do it themselves—and those rules will be at a lower standard than ours. The share of global trade accounted for by the US and the EU has dropped as emerging markets have risen; China will soon overtake both to become the most important global trading power. As President Obama stated in the State of the Union address in January 2015:
…China wants to write the rules for the world’s fastest growing region. That would put our workers and our businesses at a disadvantage. Why would we let that happen? We should write those rules. We should level the playing field.
We could have silenced some of our critics with a cruder version of this argument: You may not like the United States, but surely you’d rather do a deal with us to lock in the high level of protections that define both sides of the Atlantic, rather than do a deal with countries that don’t share them. United States Trade Representative Mike Froman frequently made this point:
The United States can launch a race to the top, rather than be subject to a race to the bottom that we cannot win and should not run…In the Asia Pacific region, for example, over 200 trade deals have been struck in recent years and more are currently under negotiation. Unlike TPP and TTIP, the vast majority of these agreements make no commitment to protecting labor rights and environmental standards, creating disciplines on state-owned enterprises and promoting the digital economy.17
The Regional Comprehensive Economic Partnership Agreement promoted by China among ten South East Asian countries (including three of the top four economies in the world) does not feature these protections. Once the US withdrew from TPP, the remaining members signed an agreement without significant provisions on intellectual property and investment protections.
TTIP’s geopolitical utility was particularly well understood in the Baltics and Central and Eastern Europe, naturally concerned about the Russian bear next door. By tying the EU more closely to the US in a deeper partnership, TTIP complicated Russia’s eternal aim to divide Europe from America and thereby project greater influence to its West, especially over the countries that had recently escaped its chilly embrace.
In addition to focusing on the geopolitical component of TTIP, we should have emphasized even more the benefits of the deal for SMEs. The vast majority of SMEs in the US and the EU had not seized the opportunities of transatlantic trade. The agreement would have enabled more SMEs to sell across the Atlantic by reducing tariff and non-tariff barriers; even those who would not do so directly would have benefited from increased sales to customers who would.
The many SMEs in the automotive supply chain were a good example. The negotiations had made significant progress on “trade facilitation”—including the reduction of customs paperwork and clearance procedures, as well as special treatment (including the elimination of customs duties) for low-value shipments. The reduction of non-tariff barriers, such as the administrative costs of dealing with divergent and duplicative regulatory environments, would have a particularly beneficial impact for SMEs given their limited budgets, staff, and expertise relative to multinationals.
My experience from explaining TTIP in Europe taught me that the single most effective pedagogical technique was to invite the local press to accompany me on visits to SMEs. These resulted in human interest stories that were far more engaging than the mumbo-jumbo of trade talk.
It was on one such trip to Pfeilring in Solingen, Germany, that I sat down with the Pfeilring CEO, Torsten Korb, and a journalist from the Rheinische Post to discuss what TTIP might mean for his business. Korb was justifiably proud of his company’s quality tableware and manicure products. He explained to me that his revenues were 20 million euro, only one million of which from sales to the US. He wanted to grow, but faced obstacles such as the significant cost of duplicative certification requirements on either side of the Atlantic (with US certification costing 5000–10,000 euros per product), unclear customs treatments for his products and often bewildering regulatory hurdles, both nationally and on the state level.18
On another trip to Worlée and Co. outside Hamburg, I sat down with the CEO, Reinhold von Eben-Worlée, the fifth-generation family owner. He proudly showed me around the plant that makes cosmetics, cleans mushrooms, and packages dried fruits and vegetables that go into soups and seasonings. He described how this was a good business because customers wanted to avoid product recalls and were willing to pay good money to a company like Worlée that mastered the technologically complex art of eliminating nearly all bacteria and foreign particles in these products. Eben-Worlée explained that his revenues were 290 million euro, of which 10 million came from sales to the US. We sat down, together with a journalist from Die Welt, to calculate the potential cost savings that TTIP would bring his company. Just the elimination of the 6% tariffs applicable to his imports and exports would save 600,000 euros per year. That meant more profits, more investment in plant and equipment, and more jobs.19
It would have helped the cause of TTIP enormously, especially in its early days, had we been able to announce some concrete and significant “wins.” Nothing succeeds like success. Achievements would have demonstrated forward momentum and would have been easier to sell than good intentions. And, crucially, businesses would have started investing real time and resources into supporting the deal, rather than waiting on the sidelines to see if the negotiations were getting traction.
One good way of showing success would have been to show early and significant ambition on tariff cuts. Regrettably, this did not occur. The US and EU exchanged offers in early spring 2014: While Washington offered to eliminate 88% of all tariff lines, with immediate duty elimination for only 69%, Brussels offered to eliminate 96% of all tariff lines, with immediate duty elimination for roughly 85%.20 We explained that our negotiating style was to start low and build it up over time with the ultimate objective of eliminating all tariff lines; we argued that the initial offer was better than what we had traditionally tabled at the initial phase of trade talks with important trading partners; and we pointed out that the EU offer was not as good as it appeared because it was contingent on several conditions and contained exceptions to ultimate tariff elimination (essentially shielding sensitive agricultural items). Those exceptions included tariff rate quotas that set a quantitative limit for a given item under which it can be sold duty-free or with a low tariff, with high tariffs kicking in above that quantitative limit.
But the damage was done: Having convinced some skeptical member states to come forward with an ambitious first offer, the European Commission ended up with egg all over its face and was thereafter branded by those states as a boy scout negotiator. Irishman Phil Hogan, EU Commissioner for Agriculture (currently Commissioner for Trade), claimed vindication in his steadfast refusal to discuss tariff cuts in key agricultural areas. We remained on the back foot for more than a year until the US and the EU exchanged symmetrical offers in the fall of 2015 to eliminate 97% of all tariffs. The EU continued to tie further progress on tariff elimination on US movement in unrelated fields, including government procurement and geographical indications.
Changes Required in the US Approach
I left my post convinced that we could have made much more progress on TTIP, even though it was unlikely that we would actually finalize an agreement in three years. I remain convinced that this agreement is of great importance to deepen the partnership between the US and the EU. While the Trump administration never withdrew from TTIP, its protectionist policies have made significant progress toward an agreement highly unlikely. When the time is ripe, we need to take into account the lessons behind TTIP’s failure in order to achieve an ambitious, but more tailored, agreement.
First, the United States should not seek to backload too many priority EU issues to the end game of the negotiations in the hope of exerting maximum political pressure on the EU to make concessions. I believe that we deployed that tactic in TTIP and it predictably failed. Whereas the US executive branch is capable of making big moves at the last minute, the EU decision-making apparatus is simply not suited to do that. Lengthy consultations are needed among the EU institutions and especially with the member states, among whom there are often very different perspectives. TTIP negotiations have a greater chance of success if they feature steady progress with only a few politically difficult issues reserved for the “end game.”
Second, the United States needs to take a different approach on ISDS. During TTIP, we had allowed this issue to fester like a gangrenous limb, endangering the future of the entire agreement. In the future, the US and the EU could place provisions on investor-state dispute settlement in an agreement separate from the body of a free trade agreement. That would avoid the toothache of subjecting a free trade agreement to ratification by the European Parliament and 38 national and sub-federal parliaments.21 Another option would be for the US and EU to drop ISDS altogether. It would not be the first time that the US would sign an FTA without ISDS: The one it signed with Australia left it out on the ground that each side trusts the other’s laws and national courts.
Third, the United States should reconsider its refusal to include within TTIP provisions deepening cooperation on financial services regulation. That refusal led the European Commission to stop negotiating reciprocal access to financial services, an issue of enormous interest to the highly competitive US financial services industry that sees significant opportunities to expand its service offer in Europe. The US Treasury justified its position on the grounds that including financial services regulatory cooperation in a trade agreement would risk undermining the 2010 Dodd-Frank legislation that tightened US rules introduced after the 2008 financial crisis; that the EU was further behind the US in regulatory reforms; and that the US and EU already cooperate in multiple fora, both bilaterally in the Financial Markets Regulatory Dialogue and multilaterally in the G-20, the Financial Stability Board and the Basel Committee for Banking Supervision.
I was kept on an exceptionally tight leash in terms of what I could say on this issue during my public appearances on TTIP, but I thought that the European Commission’s proposal deserved serious consideration. So did the Transatlantic Financial Regulatory Coherence Coalition, representing a large portion of the transatlantic financial services community, including the Securities Industry and Financial Markets Association (the US trade body representing the country’s biggest banks and institutional investors) and the Association for Financial Markets in Europe.
While it was accurate in 2013–2015 to argue that the EU was lagging the US in its response to the financial crisis, it was less so following important banking sector reforms in the EU. Concerns that the EU secretly desired to harmonize at the lowest common denominator and to oblige the US to endorse different EU priorities were misguided. The European Commission argued (correctly, in my view) that while existing fora for cooperation were useful, more could be done to reduce divergent implementation by US and EU regulators of internationally agreed principles. Moreover, meetings of US and EU regulators were too infrequent, ad hoc, backward looking, and often occurred at the last minute under market pressure.
While making clear that nothing would undermine the ability of regulators to regulate in the public interest, a framework for regulatory cooperation in TTIP would diminish regulatory fragmentation and enhance financial stability by enabling consistent implementation of internationally agreed standards, mutual consultations in advance of significant new financial measures (without unduly affecting the jurisdiction of either party), and joint examination of existing rules to examine whether they create unnecessary barriers to trade.
Fourth, the United States should prioritize the inclusion of an energy chapter in a future US-EU free trade agreement. As described in detail in Chapter 8, many EU member states, especially in the Baltic region and Central and Eastern Europe, have been extremely concerned about the reliance on imports of Russian gas. They are absolutely justified in their concern because of Russia’s habit of treating gas exports as a political weapon and Gazprom as an arm of the Russian state. Moreover, the United States has worked hard with Europe to diversify European sources of imported energy and to create the necessary infrastructure to help ensure that gas and electricity flow more freely in Europe, thereby eliminating “energy islands.”
Although the US negotiators drafted such an energy chapter and proposed it to the EU during TTIP, it was rather modest. We should have given more careful consideration, working together with Congress, to facilitating approval of US facilities to export LNG to Europe. This would have added more volume, lowered prices, and, most importantly, strengthened the negotiating hand of vulnerable EU states when dealing with Gazprom. And it would have provided a dramatic symbol of solidarity with Europe. The Trump administration has facilitated LNG exports with very positive effects: As Europe’s third largest supplier of LNG, the US can provide significant diversification benefits and limit Russia’s ability to use energy as a political weapon. This is one of the rare areas of the Trump administration’s policies toward the EU that I applaud.
Fifth, the US needs to be pragmatic in a number of troublesome areas. We had already shown such pragmatism regarding audiovisual services that the EU had carved out of the negotiations. Although existing EU restrictions are protectionist, we were not negotiating to remove them because we recognized that they are a fact of life. Much of the US content industry has learned to live with EU and member state quotas and local production requirements for television, radio, and film. We were right, therefore, to focus on preventing further extensions of the restrictions, especially in digitally delivered services through the internet.
Similarly, the US should recognize that nothing is likely to change widespread European hostility toward the use of ractopamine, a drug used in pig feed in order to accelerate weight gain and promote lean meat. The drug is banned in every country except the US (where it is considered safe). The only way to address the ten-to-one imbalance of bilateral trade in pork in favor of the EU is for US pork producers to expand their ractopamine-free production lines.
The US should also recognize that EU public opinion is also hostile toward the use of growth hormones in cattle feed, even though they are considered safe in the US. Rather than allowing this issue to poison the negotiations, it would be advisable for the negotiators to state and for a final agreement to confirm (as in CETA) that nothing in the agreement would affect EU legislation on hormone-treated beef. The only way for US beef exporters to tap into the vast demand in Europe for high-quality US beef is to have separate hormone-free production lines.
Following US agreement in 2009 to lift retaliatory duties against the EU as authorized by the WTO, the US negotiated a memorandum of understanding with the EU allowing 48,200 metric tons of “high quality” non-hormone beef into the EU duty-free per year. But the US has been filling only half of that quota because it has been available to Australia, New Zealand, Uruguay, and Argentina under a first-come, first-served system and because US grain-fed beef costs more. During the Obama administration, USTR placed increasing pressure on the EU to increase the overall quota, carve out a larger amount of it just for US beef and/or define “high quality” in such a way that only grain-fed cattle would qualify. This was a major objective of TTIP especially after Canada benefited from a 50,000 metric ton hormone-free beef quota all for itself as a result of CETA. In 2019, the Trump administration concluded negotiations with the EU to allocate 35,000 metric tons of the total quota to the US.
The US should also recognize that it will not change widespread European hostility against genetically engineered (GE) food, even though this is a major economic issue for the United States. Whereas the EU allows the importation of food containing genetically modified organisms (GMOs) under strict labeling requirements, it does not allow the importation of GE crops. That is a real problem because more than half of US farmland is used to grow GE crops, including nearly all soybeans and maize and roughly three-quarters of the corn. Due to the zero tolerance of even infinitesimal traces of GMOs in crop shipments to the EU, shipments are denied entry and many producers simply prefer not to incur the risk of shipping at all. All this has resulted in a significant decline in US exports to the EU of soybeans. Moreover, major US agri-food and chemical companies have been injured by the significant backlog of applications to approve new GE agricultural products in the EU (due to an average processing time of 47 months, compared to the legally prescribed time of twelve months).
Nonetheless, this issue should not be allowed to infect and potentially kill a transatlantic free trade agreement. The US should agree with the EU on a clear statement that nothing in a final agreement would compel the member states or the EU to change their existing policies or procedures with regard to biotechnology. However, the US should continue to press the EU to respect its existing obligations (including listening to scientific advice) and timetables laid down under the EU legislative framework for approving GMOs. The EU should also continue reminding the EU of its obligations under the WTO agreement on the application of SPS measures, including to base trade restrictions taken on public health grounds on sound science and limited to the extent strictly necessary. A WTO dispute settlement panel in 2006 found that the EU’s de facto ban on GMO products violated that agreement.
The European Commission has been understandably frustrated that member states have repeatedly failed to approve or reject EU decisions on new biotech applications, thereby saddling the European Commission with the unpopular task of doing so. But it was troublesome that the Juncker Commission decided that the European Commission, the traditional apolitical “guardian” of the EU treaties should “give the majority view of democratically elected governments at least the same weight as scientific advice.”22
The US could launch a complaint against the EU’s biotech approval process, but that would unleash significant anti-US and anti-trade reactions. One potential compromise would be for the US and EU to agree that GMO food exports from the US will be freely imported into the EU if they are labeled as such. Let consumers, rather than the nanny state, decide what they want to eat.23
Finally, the US needs to be pragmatic about the extent to which it can force the EU to adopt a rule-making system that looks like its own. According to the US “notice and comment” procedure applicable to executive agencies of the federal government under the Administrative Procedures Act, proposed rules are published well in advance; any stakeholder, including those in Europe, can comment on the rules and the comments must be published and responded to by the agency in adopting its final rule. While the European Commission has been making important strides (even pre-dating the commencement of TTIP negotiations) to improve the openness, transparency, and accountability of its rule-making system, it is unlikely to start publishing draft legislative proposals for comment prior to their adoption because this would undermine its prized power to initiate legislation.
As noted in my Personal Mission chapter, there is plenty of criticism, not only from the US but also within Europe, of the European Commission’s limited consultations on draft legislation and the EU’s basic method of passing legislation whereby detailed rules fleshing out general laws are drafted in an opaque process involving national experts. Sound science is sometimes overlooked, and the ability of private parties to challenge the rules is limited. The aim of minimizing transatlantic regulatory divergence through increasing alignment of regulatory processes is laudable. But it is open to question, however, whether a trade agreement is really the best vehicle to achieve this in light of the complexity, time, and sensitivities involved.
Changes Required in the EU Approach
The EU also needs to change its approach in order to promote the successful conclusion of a US-EU free trade agreement. It should withstand the temptation of drawing red lines and tying progress in each area to progress in many other areas. A more productive approach would be to seek progress in all possible areas, while naturally reserving the right not to agree to a final deal if the balance of benefits and costs are not right.
Moreover, the EU needs to be pragmatic about its ambitions with regard to geographical indications, maritime services, and government procurement.
With regard to geographical indications, the EU should focus on requesting clarifications of existing US law, especially regarding protections of consumers against misleading claims of geographical provenance. There is very little prospect of the US changing its trademark-based laws protecting food and wine names. The US is justified in pushing back against the EU’s efforts to significantly expand protections under US law for European food and wine. It is rightly aggrieved that the European market remains closed to key US agricultural exports and that EU free trade agreements impose protections for geographical indications that restrict US agricultural exports to third countries. But the US frontal attack on EU geographical indications in TTIP proved to be pointless and counterproductive.
From the beginning of the negotiations, I had considered GIs to be an issue of extreme importance. The issue should have been treated as one to be resolved in the “mid-game” and not the “end-game.” It was not as difficult to resolve as the bigger and thornier issue of government procurement, and it was the key to reaching agreement on an agriculture chapter, without which there would be no TTIP. The United States had more at stake than the EU in concluding such a chapter in order to reverse a growing bilateral trade deficit in agricultural products with the EU. According to one study, tariff elimination and a 25% reduction in non-tariff barriers in transatlantic trade would boost EU exports to the US by about 60%, while increasing US exports to the EU by about 120% by 2025.24
In one negotiating round after another, US negotiators argued that food and wines covered by GIs account for 0.1% of EU GDP, less than 0.3% of GDP in any EU member states and a 0% share in 13 member states. They account for 2% of agricultural food exports, 0.0008% of all EU exports, and 0.2% of total EU employment. Why, they asked, are EU negotiators kicking up such a fuss and why are they imperiling progress on tariff elimination and services liberalization for the sake of GIs? The economic argument was interesting, but rather beside the point. In several key member states, including Italy, France, and Spain, GIs certainly do play a major economic role: EU food and wine exports protected by GIs are worth €15 billion euro. GIs accounts for 25–30% of EU trade in processed food exports; 80% of EU wine exports and nearly all exports of spirits are protected by GIs. The real importance of GIs, however, does not lie in the economic statistics: It is the widespread perception that they are critical to promoting European food quality, identity, and culture. There is no point in attacking a faith-based system on the grounds that it is not based on rational argument.
The EU has complained that the US trademark-based system for protecting food and wines involves high costs of registration and enforcement through the courts; that some EU GIs cannot be registered because of prior trademarks or because certain names granted protection in Europe are considered generic in the United States; and that the level of protection afforded by trademarks is lower than under geographical indications. US negotiators countered that in reality the costs are low and that there is no prospect of ensuring EU rights holders recourse to administrative action as an alternative to litigation.25
They also argued persuasively that it would be unfair to prevent the use of many European origin names used by European immigrants to the United States; indeed, it is quite likely that these immigrants have promoted EU exports of food and wine by adopting European names. The significant value, growth rates, and market share of exports to the US from key GI-rich exporters, such as Italy, suggest that US obstacles have not been as great as suggested. The upper and middle classes in the United States are increasingly showing greater sophistication in food consumption and clearly value not only quality, but also the history and tradition, that European food and wine exports supply.
The real debate is around whether certain names deserve protection as true geographical indications or whether they are commonly used names to describe methods of production. In TTIP, the EU tabled a list of roughly 200 food, wine, and spirits names it wanted the US to protect, thereby preventing producers from using those names domestically or for export. Some names have a stronger claim to protection because they are compound names specifically linked to a place26 or because they are known under their original national language. Other names, such as feta and parmesan, are widely used generic names considered unworthy of protection in the United States.27
The key test should be whether there is a real risk of consumer confusion about geographical provenance. In some cases, the EU has applied excessive rules that don’t meet this test. The case of parmesan is one example. The EU courts have found that parmesan can be protected under EU law as an “evocation” of the geographical indication “Parmigiano Reggiano.” As a result, Kraft can only sell its grated parmesan cheese in the EU under the name “Pamesello Italiano” even though there is likely to be no risk of consumer confusion with the Italian original. I doubt very much that many European consumers would confuse Kraft’s tall green container containing grated cheese with the real thing. But the EU isn’t satisfied with trying to block Kraft from the EU market; it wants to prevent Kraft from calling its cheese parmesan even in the United States. This sort of overreach irritated US government officials. But it was rather tame compared to the effort by some senior members of the Italian government to protect all “Italian-sounding” names. The idea that spaghetti, pizza, or even prosciutto “belong” to Italy was excessive and merely served to undermine the EU’s more important argument about consumer deception.
There are already many statutes on the books in the United States that regulate the use of labels and packaging so that they do not mislead consumers about geographical provenance. All signatories to the WTO’s Trade Related Aspects of Intellectual Property Rights Agreement must also provide interested parties with the legal means to prevent the geographically misleading use of labels and packaging. And self-regulation through the National Advertising Division of the Council of Better Business Bureaus aims to combat deceptive or unfair practices in advertising. Nonetheless, the US should be open to entertaining whether existing statutes or implementing rules need to be tightened further.
In some instances, it may be worth exploring whether some names may only be used if the labeling and/or packaging states in visible lettering “Made in the USA.” But if the US goes down that road, it should gain the right to sell products it considers generic in Europe. After all, it is the consumer who should be free to decide on the basis of clear information. Secretary of Agriculture Vilsack argued that technology could help address the need for more, and clearer, consumer information about food. For example, consumers could use their smart phones to scan special bar codes or other symbols on food packages in grocery stores—not only to determine ingredients (and the presence of GMO), but also provenance.
The EU also needs to be pragmatic with regard to its negotiating objectives regarding maritime services. The EU should realize that the chances of Congress repealing the Jones Act are nil. But there is surely scope to explore flexibility in that legislation with regard to services that do not constitute shipping of goods between US ports. These services might include the shipment of empty containers, dredging, the refitting of ships (i.e., to become more energy efficient), and sea to shore services such as the maintenance of oil and wind turbine facilities. There is also scope for the Customs and Border Protection Agency to interpret more flexibly certain key provisions of the Jones Act through ruling letters.
The EU also needs to be pragmatic with regard to government procurement. It is not clear that the US needs to offer more than the EU to level the playing field, as the EU argues. The US and the EU can continue to debate the relative degrees of openness in their government procurement markets, but there will never be agreement on this point because there are so many ways of measuring openness, both legally and in practice. We have disagreed about the accuracy of our respective submissions on market access to the WTO under the Government Procurement Agreement. The US estimates that it guarantees EU suppliers roughly $320 billion worth of government procurement opportunities ($200 billion of which at the federal level); but the EU claims that the true figure is less than half that amount because of US “set asides” for US companies at the federal level and because the estimate of access to state-level procurement is inflated guesswork. The EU estimates that it guarantees US suppliers roughly $330 billion of government procurement opportunities; but the US claims that the true figure is at best half that amount because of restrictions.
During TTIP, US negotiators insisted that the situation in the EU “on the ground” is in fact far worse than what is reflected in EU law: Based on statistics in a 2011 study conducted by the EU, US suppliers competing for direct cross-border procurement secured only 0.016% of total EU government procurements. The EU claims that more recent statistics, following changes in EU government procurement rules, show far better results. US negotiators claimed that several academic studies agree with the US position that the EU government procurement market is not nearly as open as the EU claims. But the EU can point to its own studies demonstrating that these studies are analytically flawed.
US negotiators repeatedly sought to evidence US market openness by pointing to the many examples of large EU companies wining big ticket US federal and state infrastructure contracts (including highway, subway, airport and rail); but EU negotiators countered that these examples ignore the difficulties smaller EU companies face, as well as the burdensome requirements on all foreign companies to source US materials and establish a local business and manufacturing/assembly facilities in the US. The EU contrasts its fully functioning internal market for public procurement and the centralization of information about procurement contracts with the lack of an internal market or of a central information portal in the United States. The US complains about lack of transparency, language barriers, and the use of technical specifications designed to favor local suppliers.
It is hard to see how the US and EU can agree on their relative degree of market openness in government procurement when the available data is limited and subject to such conflicting interpretations. It would be more fruitful for both sides to make greater efforts to open their markets further, as specifically called for under the High Level Working Group report. The EU’s negotiating mandate elevated the issue to a major negotiating objective. The reality, however, is that the political support in the US for greater openness is slender at the federal and state levels.
Nonetheless, the US should invest greater energy to loosen federal restrictions on government procurement, both in the form of the Buy American Act, that creates a national preference for the federal government’s procurement of domestic construction materials, and the Buy America Act, that imposes domestic content restrictions on grants by various federal government agencies to state and local governments. State governments could be more tightly involved in USTR’s negotiation of government procurement in TTIP; the fact that Canada’s provinces were tightly involved in Ottawa’s negotiation of the Canada-EU free trade agreement shows that this is possible.
TTIP also suffered from the EU’s lack of pragmatism regarding electronic commerce, services, and agricultural tariffs.
The EU refused to discuss a chapter on electronic commerce despite its enormous importance. Until the US and EU successfully concluded the Privacy Shield Agreement in early 2016. That agreement formalized EU recognition that US privacy laws are essentially equivalent to its own and ensure a legal basis for continued transfers of data from Europe to the US. This refusal was supposed to put pressure on the US to conclude Privacy Shield but it also had the regrettable result of undermining progress on TTIP.
The EU and the US are each other’s largest markets for US digital services, over half of which are used to create products for export.28 The EU clearly recognizes the importance of such a chapter in a free trade agreement. CETA contains one. In early 2018, the European Commission introduced rules on electronic commerce—including the prohibition of protectionist barriers to cross-border data flows, while ensuring the protection of personal data—that it would seek in future trade accords with Mexico, Chile, New Zealand, and Australia. A US-EU FTA is inconceivable without high-standard provisions on the digital economy, including the prevention of localization measures (requiring companies to build infrastructure and house data in countries they seek to serve); the promotion of free and open Internet; the prohibition of digital customs duties and discrimination of digitally delivered goods and services compared to their physical counterparts; and the protection of critical source code or proprietary algorithms.29
In order for a US-EU FTA to succeed, the EU must significantly improve the services offer it tabled in TTIP, including by adopting a “negative list” approach, guaranteeing current levels of access, and eliminating the open-ended ability to discriminate against “new services.”
Most important, the EU needs to make a much bigger effort to eliminate tariff and non-tariff barriers to US agriculture exports. Even if the US cannot substantially increase its GMO exports, there are many other barriers that can be addressed. When I arrived in Brussels, I learned that US agricultural exports totaled $155 billion, but only $13 billion went to the EU. The EU’s agricultural exports to the US were double that amount and had been growing 8% per year since 1995. US agricultural exports, on the other hand, had been booming (especially to China and Southeast Asia), but in inflation-adjusted terms exports to the EU were one-third of their level in 1980 and our market share had been falling. We were facing EU tariffs two to three times as high as our own, as well as non-tariff barriers in every single major commodity group: meat, poultry, grains, horticulture, and dairy.
All Together Now
Both the US and the EU can take several steps to address some of the most pervasive concerns about a free trade agreement, including diminished sovereignty and lower quality of life. After destroying any likelihood of ISDS being in an agreement, sceptics of TTIP focused on regulatory cooperation as the next source of evil. They worried that institutionalized cooperation would lead to secret trade-offs between the US and EU at the expense of consumers, undermine checks and balances in their domestic regulatory processes, and discourage either side from entering into new regulatory initiatives.
The US and EU could take a page out of CETA and commit to inserting into a final text an interpretative statement reaffirming the right of governments to continue providing or expanding the range of certain public services (such as water, public health, and education) and to bring back under public control such services that they had previously privatized. The statement should confirm the intention not to lower environmental, health, safety, or labor rights, including in order to promote trade and investment, and the right of governments to regulate in the public interest.
A transatlantic FTA should explicitly state that the aim of regulatory cooperation is to promote the effectiveness of each side’s regulators, while respecting their autonomy. It should emphasize that the main purpose of such cooperation is to enhance regulators’ ability to redirect resources to monitor imports from riskier jurisdictions, rather than the elimination of barriers for the sake of eliminating costs and boosting trade across the Atlantic. The US and the EU need to be pragmatic, however, about what they can achieve on regulatory cooperation in a trade agreement.
Neither side should use an FTA to impose its model of rule-making on the other. It has been nearly two decades since the parties concluded the 2002 Guidelines on Regulatory Cooperation and Transparency; an FTA can’t operate on this kind of timescale. The Regulatory Cooperation Council between Canada and the US has been of some utility but that was built on decades of shared experience and trust-building through NAFTA.
Sectoral regulatory cooperation is also a long-term project. Regulators will always be reluctant to transfer authority to a foreign body or to admit that their way of doing things is not optimal. Greater high-level political pressure on regulators to cooperate is useful (and is often lacking), but it only goes so far. In the United States, it is important that Congress create the right incentives and provide the proper funding for US regulatory bodies to get serious about regulatory cooperation with advanced economies, including the EU.
US-EU regulator-to-regulator discussions on automotive standards should of course continue to focus on setting common standards that can then be adopted as global standards. But they are lengthy and complex. Perhaps it would make sense to detach these discussions from TTIP and focus instead on mutual recognition of each other’s existing regulations. It might be easier to achieve mutual recognition in areas unrelated to crashworthiness, such as lighting and vision standards, seat belt anchorages, seat belt-ignition interlocks and automatic emergency breaking, as well as to cooperate on future regulations (including on autonomous and electric vehicles).
One of the key longer-term lessons about the failure of TTIP is that many people are turning against free trade and globalization because they feel that the gains flowing from them have been privatized by those at the top of the pyramid, while the costs have been socialized. Many populist leaders on both sides of the Atlantic have won power over the past few years by tapping into the feelings of frustration from those who felt left behind or ignored. While one can criticize the policies of the populists as being counterproductive, especially for their constituents, there is little doubt that the social contract—market liberalization in return for high standards of social protection—has broken down.
There are many domestic and transatlantic policy choices that help rebuild the case for trade. As argued in the conclusions to this book, there should be a concerted effort to ensure that trade adjustment assistance mechanisms—consisting of retraining and/or monetary compensation for those who lose their jobs from globalization—are better funded and more effective.
The failure of TTIP has cost the US-EU relationship dearly, as was made sadly clear in March 2018 when President Trump unleashed serious transatlantic trade tensions by imposing high tariffs on steel and aluminum imports, including from the EU, on the grounds of “national security.” The EU naturally reciprocated with its own tariffs aimed at hurting key US exports, including from Congressional districts that supported the president. Throughout 2018 and 2019, the president threatened to impose tariffs on imports of cars from the EU on the same grounds. Auto tariffs would seriously inflame transatlantic tensions because EU automotive exports to the US are about ten times greater in value than EU steel and aluminum exports combined. Germany accounts for about 60% of Europe’s $45 billion in annual exports of cars and car parts to the US. The idea that imports from close allies, such as Germany, at a time of peace could be considered a national security threat is disgraceful.
Under the Trump administration, the United States joined Russia and Saudi Arabia in their efforts to invoke the national security exception in WTO rules as a free pass to justify trade restrictive measures. A WTO panel logically found in the Russian case that while Russia’s actions could be justified under the exception, there is no such free pass. The WTO may review trade restrictive measures to determine whether they have a plausible connection to national security. If this were not the case, every country could obviously invoke national security to do whatever it wants. That would be the law of the jungle. In a jungle fight, nobody comes out a winner, not even the big gorillas.
While a truce from US-EU trade hostilities held during 2018–2019, it was based on weak foundations. After a meeting with European Commission President Juncker in the White House in July 2018, the president announced a “big beautiful deal” whereby the EU would start buying more soybeans and LNG from the United States. Although EU member states make those decisions, not the EU itself, the president and his administration appeared not to notice. The European Commission understandably hyped the increasing export volumes (already well under way before the agreement) to placate the president and avoid the car import tariffs that would have serious consequences in Europe. The leaders announced the launch of discussions to liberalize trade between them, including the elimination of subsidies and non-tariff barriers, both of which are laughably unrealistic. Fundamental disagreements, including about whether agriculture would be part of the agreement, plagued negotiations from the start.
Although President Trump’s repeated threats of imposing car import tariffs on the EU may result in some form of mini-deal with the EU that features lower tariffs on some goods and enhances regulatory cooperation, an ambitious trade deal seems unlikely. There is plenty of potential for an eruption of transatlantic trade disputes in the short term, including over EU member states’ digital services tax laws and perhaps an EU challenge before the WTO regarding the trade diversionary effects of the US “phase one” trade deal with China.
As this book was going to press, the US and the EU were waiting for the culmination of a bitter 14-year dispute over aircraft subsidies granted to Boeing and Airbus. In September 2019, the WTO allowed Washington to hit the EU with billions of euros in punitive tariffs because of subsidies granted to Airbus contrary to WTO rules. In 2020, the WTO is scheduled to determine Airbus’s appropriate retaliation against Boeing. It is welcome that the Trump administration is, at least in this dispute, prepared to work within the terms of the WTO dispute settlement process. But the president may exploit the case as another casus belli against the EU, undermining the fragile transatlantic trade truce. It would be far better to settle this bitter battle than to engage in another round of mutual retaliation.
Just as damaging as its threat of unilateral sanctions against the EU, the Trump administration has attacked some of the foundations of the multilateral rules-based trading system, including the WTO. By blocking appointments to the WTO dispute settlement body, the US has forced the EU and a group of 16 nations (including China and Brazil) to establish an alternative appeals system whereby members would voluntarily submit their disputes to arbitration. Despite pledging in July 2018 to work with the EU on WTO reform, the Trump administration has refused to engage on the EU’s long list of concrete proposals to do just that despite agreeing (most probably) with the vast majority of them.
The EU’s proposals focus largely on pressuring China to rectify its unfair trading practices, including massive subsidies, intellectual property theft, significant obstacles to market access, and the role of state-owned enterprises, to name a few. Perhaps the Trump administration has not engaged with the EU on these proposals because it doesn’t believe that it needs the EU as an ally to deal with China. Or perhaps it actually prefers to tear the rules-based trading system apart. Turning world trade into a free for all brawl might bring short-term advantages as the US can focus its leverage in a series of bilateral, transactional agreements with weaker countries. But it will have serious long-term consequences for global prosperity and US influence.
The EU, unfortunately, appears particularly vulnerable to the Trump administration’s objective of repatriating global supply chains. Major European exporting countries, above all Germany and Italy, rely on inputs from other countries for their exports. If globalization goes into reverse and supply chains are broken, countries with the largest trade surpluses, small domestic markets, and a reliance on export-driven growth will be most affected. The EU therefore has much at stake in the question of whether the US changes its trade policies.
Footnotes
1
“Attitudes Toward Global Trade and TTIP in Germany and the United States,” Bertelsmann Foundation, August 2016, p. 7.
2
In reality, this dichotomy is wildly overstated by the critics of the US approach. In the United States, precaution is built into our risk assessment and risk management activities. It is reflected in our practice of adapting regulations based on the experience gained in implementing them and on new evidence that becomes available.
3
“Support in Principle for US-EU Trade Pact,” Pew Research Center (in association with the Bertelsmann Foundation), April 9, 2014, p. 14.
4
Martin Greive and Marc Nelle, “Der Deutsche Aufstand Gegen den Vertrag Mit Amerika,” Die Welt, April 25, 2016.
5
Hazel Sheffield, “TTIP ‘Must Include Human Rights,’ Jeremy Corbyn Tells Cameron,” The Independent, February 22, 2016.
6
Anti-TTIP event at Conway Hall in London, October 8, 2015.
7
Remarks by US Trade Representative Michael Froman on the United States, the European Union, and the Transatlantic Trade and Investment Partnership, September 30, 2013.
8
Amcham EU, The Transatlantic Economy 2019. See also Daniel Hamilton, Creating a North Atlantic Marketplace for Jobs and Growth, Center for Transatlantic Studies, 2018.
9
Commission Staff Working Document, Impact Assessment Report on the future of EU-US trade relations, March 12, 2013.
10
Fredrik Erixon and Matthias Bauer, “A Transatlantic Zero Agreement: Estimating the Gains from Transatlantic Free Trade in Goods,” European Centre for International Political Economy, Occasion Paper 4/2010.
11
Shawn Donnan, “Maine Lobster Claws Itself Back from EU Ban,” Financial Times, October 14, 2016.
12
The EU later claimed that it had always made clear that full duty elimination would not be possible for the most sensitive agricultural tariff lines, especially those relating to beef, poultry and pork. But the report states that “the goal of the agreement should be to eliminate all duties on bilateral trade…”.
13
The US list contained maritime transportation; gambling and betting; social services; and minority affairs. The EU list contained over 200 exceptions. The EU disputed the US characterization by arguing that many of the exceptions were maintained by individual member states (not across the EU) and were economically insignificant.
14
The European Commission, Transatlantic Trade and Investment Partnership: The Economic Analysis Explained, September 2013.
15
“Coming and Going,” The Economist, October 1, 2016.
16
Jim Kessler and Jay Chittooran, “Night and Day: Post-NAFTA Trade Deals Yield Steady Surpluses,” Third Way, April 2016.
17
Michael Froman, “The Geopolitical Stakes of America’s Trade Policy,” Foreign Policy, February 17, 2015.
18
Fred Lothar Melchior, “US-Botschafter am Schleifblock,” Rheinische Post, March 8, 2016.
19
Olaf Preuss, “Warum der Mittelstand auf das umstrittene TTIP setzt,” Die Welt, June 16, 2016.
20
Inside US Trade, “Under Pressure to Show TTIP Progress, US, EU Focus on Market Access,” April 17, 2014.
21
A European Court of Justice ruling in 2017 found that international agreements addressing investment disputes are of “mixed competence” among the European Commission and the Member States and therefore can only be approved by the European Parliament and 38 national and sub-federal parliaments.
22
Jean-Claude Juncker, “A New Start for Europe: My Agenda for Jobs, Growth, Fairness and Democratic Change,” Opening Statement in the European Parliament Plenary Session, July 15, 2014.
23
Several US states had introduced laws requiring labeling until they were preempted by the 2016 federal National Bioengineered Food Disclosure Law, establishing a nationwide standard for disclosing the presence of foods and ingredients from GE crops.
24
European Parliament, “Risks and Opportunities for the EU Agri-Food Sector in a Possible EU-US Trade Agreement,” 2014, p. 11. http://www.europarl.europa.eu/RegData/etudes/STUD/2014/514007/AGRI_IPOL_STU%282014%29514007_EN.pdf.
25
The EU’s FTA with Canada states that “Each Party shall provide for enforcement by administrative action…to prohibit a person from manufacturing, preparing, packaging, labelling, selling or importing or advertising a food commodity in a manner that is false, misleading or deceptive or is likely to create an erroneous impression regarding its origin.” Article 20.19(4).
26
In the EU FTA with Canada, the names Brie de Meaux, Gouda Holland, Edam Holland, and Mortadella Bologna are protected, but not brie, gouda, edam, or mortadella on their own.
27
Other cheese names include asiago, fontina, gorgonzola, and munster.
28
Daniel Hamilton, “Creating a North Atlantic Marketplace for Growth and Jobs,” Center for Transatlantic Relations, 2018. In 2011, the United States exported $357.4 billion in digitally deliverable services. This represented over 60% of US services exports and about 17% of total US goods and services exports. The United States had a digitally deliverable services trade surplus of $135.5 billion. Jessica Nicholson and Ryan Noonan, “Digital Economy and Cross-Border Trade: The Value of Digitally Deliverable Services,” US Department of Commerce, January 27, 2014.
29
The key US negotiating objectives on electronic commerce under the Obama administration were well summarized by Deputy USTR Richard Holleyman in his “Digital Two Dozen” principles reflected in the Trans-Pacific Agreement.