The negotiation of international trade agreements has become the issue of the moment. With Brexit, a change in administration in the United States, a fragile economic recovery in the Eurozone, and China facing a slowdown in its growth, nothing is more critical to the future global economy than the terms of trade between its largest economic blocs.
The Transatlantic Trade and Investment Partnership (TTIP) is Europe's most controversial trade agreement ever. Aimed at reducing regulatory barriers between the United States and the EU, it was expected to be fairly straightforward given strong business support on both sides of the Atlantic. It has not been so. The negotiations have dragged on far longer than anticipated and now look set to fail altogether. Yet the process of its negotiation, the terms of the potential agreement and its sticking points provide valuable lessons for policy makers and academics tasked to bring future trade deals and arrangements to successful conclusions.
Alasdair Young offers a penetrating analysis of the complexities of the TTIP negotiations and explores why they have proved so difficult to conclude, what motivates the different parties concerned and what implications there are for politics and policy. Young throws light on the limits of the transatlantic cooperation and the processes of globalization and teases out the implications for the UK in its post-Brexit trade negotiations and for other nations now facing a more protectionist stance from the United States.
About the Author
Alasdair R. Young is professor of international affairs and codirector of the Center for European and Transatlantic Studies at Georgia Tech.
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The Transatlantic Trade and Investment Partnership (TTIP) negotiations aspired to integrate the world's two largest economies – the United States and the European Union (EU) – and bridge the world's most valuable and complex economic relationship. Their emphasis on mitigating the adverse trade effects of domestic policies made them also substantively the most ambitious trade negotiations the world has yet seen.
When the negotiations were launched in June 2013, expectations were high for the swift conclusion of an ambitious agreement. United States Trade Representative (USTR) Michael Froman famously declared that he expected the negotiation to be concluded on "one tank of gas". European officials suggested that a deal by the end of 2014 was doable.
The case for the agreement was strong. Officials on both sides of the Atlantic promoted it as a means of spurring on economic recovery in the wake of the global financial crisis; of responding to the rise of China, both by setting standards that would de facto become global standards and by boosting the competitiveness of US and European firms; and, subsequently, of bolstering the transatlantic alliance in the face of Russian aggression in Ukraine (De Gucht 2015: xvii; Froman 2014: 114–15). Despite these motivations, the negotiations dragged, and no end was in sight even before the twin blows of the UK's vote to leave the EU and Donald Trump's election as president of the United States. As I argue in Chapter 7, these events spelled the end of TTIP, at least in its current form. This short book explains why optimism was initially so high, and why it turned out to be misplaced. It also highlights the implications for future trade negotiations.
The initial optimism about the prospects of TTIP reflected the broad support for the agreement among transnational business interests and high-level political support, particularly in Europe. Not only did firms on both sides of the Atlantic favour an agreement, in many cases they agreed on the terms they wanted to see. There was thus an unprecedented degree of cooperation among business interests behind the agreement. In addition, labour unions were not particularly opposed to the deal. Thus, to the trade officials in charge of the negotiations, the political winds looked remarkably favourable and set fair for a swift and ambitious agreement.
The negotiations, however, ran into two distinct political headwinds. One was an unprecedented level of engagement by non-traditional trade actors – consumer and environmental groups and even citizens. This new pattern of contestation was particularly pronounced in Europe. Opposition was fuelled by concerns that TTIP would force the parties to weaken rules that delivered valued social objectives, such as product safety and environmental protection, and constrain their ability to adopt such rules in the future. The opposition to TTIP, therefore, was a particular manifestation of the broader anti-globalization sentiments evident in the 2016 US presidential election and the UK's vote to leave the EU.
The other headwind, which was stronger in the US, was the challenge of coordination. Addressing the adverse trade effects of domestic rules, as TTIP aspired to do, requires the engagement and coordination of those government officials, at all levels, who make the rules. In the context of TTIP, this meant regulators and subcentral governments: US states, EU member states and their own internal substate governments. Many of these actors have priorities other than trade liberalization and have proved loath to compromise on them in order to achieve that end. In different ways, these headwinds greatly constrained the capacity of the US and the EU to make the difficult concessions necessary to deliver an ambitious agreement, even before Brexit and Trump's election.
Although the TTIP negotiations as such are almost certainly over, they remain highly relevant. The issues that they sought to address, and the politics associated with them, will not go away and will remain relevant for future trade negotiations, not least those impending between the UK and the EU. Transatlantic regulatory cooperation remains alive and well, with us and EU regulators concluding agreements on pharmaceuticals, insurance and citrus fruit, even after the core negotiations were "frozen". The European Commission (2015d: 3) has also undertaken to increase the transparency of all future trade negotiations in the wake of opposition to TTIP. In addition, the EU has incorporated the investment court system (ICS) for dealing with complaints from foreign investors, which it proposed to address public opposition to TTIP, into its agreements with Canada and Vietnam and it intends to multilateralize that system (Commission 2017b: 15). Whatever the fate of the TTIP negotiations, therefore, they have had enduring implications.
The rest of this chapter lays the groundwork for the volume. It puts the TTIP negotiations in context with respect to other such trade agreements, before briefly introducing the key trade policy-making actors and institutions on both sides of the Atlantic. It also addresses why the negotiations were launched when they were.
TTIP: First among preferential trade agreements
The aim of the TTIP negotiations is to conclude a reciprocal agreement between the EU and the US that would improve how they treat each other's firms and products. As such, it is an example of a preferential trade agreement (PTA); PTAs are also sometimes called free trade agreements (FTAs) or regional trade agreements (RTAs). The number of PTAs in force in the world has climbed steadily since 2007. By mid-2016, there were 267 in force around the world (WTO 2016). The EU and the US are active participants in concluding such agreements, but for the most part they have not pursued them with their major economic partners.
Partially in response to its struggles to shape the agenda of the World Trade Organization's (WTO) Doha Round of multilateral trade negotiations, the EU started to emphasize market access through bilateral agreements in 2006. One key element of the EU's strategy was to pay more attention to non-tariff barriers to trade, such as regulations, that impede trade as a side effect of realizing other policy objectives (Commission 2007: 3). A second change in tactics was that the EU intended to focus on economically significant partners. This represented a departure from its existing trade agreements, which had been concluded, primarily for political reasons, with the former colonies of the EU's member states or with countries in the EU's "neighbourhood" (Messerlin 2001). This new impetus ultimately led to agreements with Canada, Singapore, South Korea and Vietnam (see Table 1.1).
In 2010, the EU (Commission 2010a: 3) announced a "renewed" trade strategy as a contribution to the EU's 2020 growth strategy. Although not a major step-change from the previous strategy, the new initiative stressed the "depth and quality" of trade relationships, leading to a focus on regulatory barriers to goods and services and the promotion of the EU's environmental and social values (De Gucht 2010: 2–3). There was also an even more explicit focus on the EU's largest trading partners and the emerging economies: the US, China, Russia, Japan, India and Brazil (Commission 2010a: 11). This new initiative led to the EU's negotiations with India, Japan and the United States.
Despite talk of a "competitive liberalization" between the EU and the US in which each party sought to conclude preferential agreements with third countries in order to disadvantage the other (Dür 2010; Heron & Siles-Brügge 2012: 251), the US also concluded PTAs primarily for political, rather than economic, reasons until very recently. Consequently, most of its PTAs are with Latin American countries. The most notable exceptions are the 1994 North American Free Trade Agreement (NAFTA) and its 2007 FTA with South Korea. The Transpacific Partnership (TPP) agreement – which was concluded in 2016 and included 11 other countries, including Japan – and TTIP, by engaging with economically important partners, marked a clear departure from earlier US trade policy (see Table 1.2).
As the two tables demonstrate, the TTIP negotiations represent the first time that either the US or the EU negotiated a trade agreement with an economic equal. This is important because, in reciprocal trade negotiations, each party offers improved access to its own market in exchange for improved access to the other's. Consequently, market size is the principle source of power in trade negotiations. When the parties are evenly matched, it is less obvious which side will make concessions in order to secure an agreement, and this makes agreement harder, all else being equal.
In addition, the TTIP negotiations marked the first time that the US and the EU sought seriously to address regulatory impediments to trade. Although both the US and the EU have begun to address behind-the-border issues in their trade agreements, they had not previously pursued extensive regulatory cooperation (Young 2015a). Rather, their trade negotiations had focused on enhancing market access. In many cases, the US and EU offered preferential access to their markets to developing countries as part of their development strategies and in order to foster political relations. In other cases – such as NAFTA and their agreements with Korea – their aim was to increase exports to those markets by lowering foreign tariffs.
The TTIP negotiations were the first trade negotiations in which regulatory cooperation was a central issue (De Ville & Siles-Brügge 2015: 5, 63; Lester & Barbee 2013: 848). The ambition of TTIP is evident, not only in its aspirations for the depth of cooperation, but also in its breadth of coverage, with its aim going far beyond simply eliminating (at least largely) tariffs on transatlantic trade in goods (see Chapter 3). The talks sought to improve market access in services – such as by enabling foreign firms to provide transportation and professional services – and in government procurement, by allowing foreign firms to compete on equal terms with local ones for government contracts. They aspired to mitigate regulatory differences – such as those governing the safety of automobiles, chemicals and food – in order to facilitate trade in the present and to avoid such differences arising in the future. The talks also aimed to establish global benchmarks in areas such as state-owned enterprises, intellectual property, and investment. Despite superficial similarities to other PTAs, therefore, the TTIP negotiations represented uncharted waters for both the US and the EU.
Trade-policy making: Suited to simpler times
The EU and the US both conducted the novel TTIP negotiations using institutional structures designed for much simpler trade agreements (Peterson & Young 2007). In both the EU and the US, the conduct of the negotiations is delegated to the executive: to the European Commission and the administration, particularly the USTR. In the US, authority for conducting trade negotiations under the US Constitution resides with Congress. Under "trade promotion authority" (TPA or "fast track"), Congress grants authority to the executive on a time-limited basis to negotiate trade agreements. Any resulting agreements are subject to a straight up-or-down vote – no amendments – in both houses of Congress, with a simple majority in each required for ratification. TTIP presented political problems for both the executive (negotiator) and the legislature (ratifier).
With respect to the negotiator, the USTR effectively has narrowly defined authority for traditional trade policy. Given the substantive breadth of the TTIP negotiations, much of the substance of the talks fell within the purview of other parts of the federal government (see Chapter 6). These agencies and departments have their own priorities, oft en set in legislation, that are very different from facilitating trade. In addition, the TTIP negotiations touched on a number of issues that are the prerogative of US states, including state-level government procurement, investment incentives and some goods and services regulations. Thus, the USTR did not have the same authority to negotiate TTIP as it has in traditional negotiations and had to engage and coordinate an array of disparate government actors.
At the same time, support for trade liberalization within Congress is weak. This was the case even before the prominence of trade policy in the 2016 US presidential election. In 2001, the Bush administration secured TPA for what became the Doha Round only by exploiting the shadow of 9/11 and exerting heavy pressure on House Republicans, and even then it barely won three excruciatingly close votes in the House of Representatives (Peterson & Young 2007). The 2015 renewal of TPA to cover the TPP and TTIP negotiations was approved by the House by 218 votes to 206 (Ferguson & Beth 2015). Much of the opposition to TPA, however, focused on the TPP. TTIP, which was largely overshadowed by TPP, seemed to be much less controversial in Congress. Thus, TTIP particularly tested the US trade-policy framework through the challenge of coordinating its negotiating position. As a result, the US's offers were considerably less ambitious than the EU would have liked.
The EU's trade-policy framework is broadly similar to that of the US, but in Europe the challenge of ratification looms much larger than the issue of coordination. The EU trade-policy system involves a double delegation (Meunier & Nicolaïdis 1999). In the 1957 Treaty of Rome, the member states delegated trade policy to the EU, with the negotiations conducted by the EU's supranational executive, the European Commission. Because Europe does not have powerful, "independent" regulatory agencies, and because EU cooperation is particularly well developed in most of the key areas under discussion in TTIP, coordination of its negotiating position was less of an issue for the EU than it was for the US
Ratification, however, is a particular challenge in Europe. Agreements falling within the EU's "exclusive competence" are ratified by the Council of the European Union, in which the governments of the EU's 28 member states are represented, by a qualified majority and by the directly elected European Parliament by an absolute majority. When aspects of trade agreements fall outside the exclusive competence of the EU, the member states must also ratify the agreement individually.
The scope of exclusive EU competence has long been contested between the Commission and the member states (Young 2002). The 2007 Treaty of Lisbon was thought to have finally resolved the issue by making EU competence "comprehensive" (Woolcock 2015: 390). Some aspects of TTIP, most notably provisions on investor–state dispute settlement (ISDS), would have fallen within the authority of the member states, meaning that it would have been a "mixed agreement" and would have had to be ratified by each of the member states, as well as by the Council and European Parliament. As, under some national constitutions, subnational parliaments also have to approve agreements, there are 38 legislatures that must endorse a mixed agreement. There are thus a great many veto players in the EU for ambitious trade agreements, such as TTIP.
The large number of veto players has implications both for the EU's negotiating position and for the prospects of its ratifying the agreement. As the Commission does not want to conclude an agreement that will not be approved, it negotiates in the "shadow of ratification". Its negotiating positions are thus shaped by what it thinks the myriad ratifiers will accept. As each has a veto, the most reluctant has enhanced influence over the EU's negotiating position. Such considerations made it impossible for the Commission to make concessions in key areas of interest for the US, such as food-safety rules, even if it had wanted to.
The implications of the large number of veto players for the EU's ability to ratify mixed agreement was brought to the fore when sub-national Belgian parliaments – most notably that of Wallonia – delayed the signing of the EU's trade agreement with Canada in October 2016 by initially rejecting it. As subnational governments may well be controlled by political parties other than those in the federal government (as was the case in Wallonia), there is the potential for mixed agreements to be rejected aft er they have been agreed.
Thus, both the US and the EU embarked on particularly challenging negotiations with policy frameworks designed for simpler trade negotiations. As a result, the US faced particular challenges in coordinating its position, and the EU was constrained by a plethora of veto players. Those institutional constraints limited the scope for concession on both sides, contributing to the talk's limited progress prior to Brexit and Trump's election.(Continues…)
Excerpted from "The New Politics of Trade"
Copyright © 2017 Alasdair R. Young.
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Table of Contents
1 Misplaced optimism 1
2 The transatlantic economy: Interpenetrated not integrated 17
3 TTIP's ambition in context 29
4 Cooperation: Transatlantic business alliances 53
5 Contestation: The politicization of trade policy 67
6 Herding cats: Intra- and intergovernmental coordination 93
7 Brexit and Trump: Body blows to TTIP 111
8 Lessons from TTIP 123