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EU and US Experts Comment on TTIP

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On the 23rd of May, I had the pleasure to attend the Georgetown Law International Trade Symposium in Brussels. The symposium was opened by the outgoing President of the European Commission, José Manuel Durão Barroso, and included panels on the Trans-Atlantic Trade and Investment Partnership negotiations and the application of the World Trade Organization’s Appellate Body as a dispute resolution body in the case against the European Union’s ban on seal products. I have made a summary of the discussions. Any errors arising from misunderstanding or abbreviation are wholly my own.

invitation

Introductory Remarks:

The introductory remarks were given by Max Jadot (L’81). In presenting President Barroso, he noted that he is only one of three men to have served two consecutive terms as EU President, and he did it at a time of grave crisis for the European Union. No one could call Mr. Barroso’s tenure in office “fair weather sailing”, but the EU has survived: thanks to the role of key figures and to strong institutions. Mr. Barroso takes with him the reputation as a practical man, open to compromise; a moderate; a scholar. It was while doing research for his PhD dissertation in 1985 at Georgetown University that Mr. Barroso received a call from the government of Portugal, which wanted him to stand for Member of the European Parliament for his home country. He ran and won, the first of 6 consecutive terms as MEP. He then served as Secretary of State and Foreign Minister in successive government until becoming Portugal’s Prime Minister in 2002. Mr. Barroso also taught 4 semesters at the Georgetown School of Foreign Service.

Key Note Address
José Manuel Durão Barroso (H’06), President of the European Commission

The first time he was in Brussels was in 1978, after completing his law studies in Lisbon. This was one year before Portugal asked to become a member of the European Union, and he was asking for funding to create the first pan-European association for studies abroad. Mr. Barroso was first associated with Georgetown when he traveled there as a PhD student on a scholarship provided by the Swiss government. But he heard the appeal of politics; he claims he is an accidental politician even though he has been in politics for the past 30 years. Mr. Barroso has always returned to Georgetown, and after serving as the Portuguese Foreign Minister, he taught at the School of Foreign Service for 2 years. He was very pleased to be invited to join the symposium, even if the invitation came from the Law School; and even more pleased to be able to attend, which would not have been the case if the event had been held outside of Brussels.

As a lawyer by training, Mr. Barroso declares the European Union to be the most interesting experiment in transnational law in history: 27 sovereign member states agreeing to join under a single legal framework, to play by the same rules. This intersection of law, economics and politics is very interesting. The EU commitment to the rule of law is not just for internal consumption; it runs through every political institution of the Union: foreign policy, trade, enlargement, climate policy, everything. This month, the European Union is celebrating the 10th anniversary of the single greatest enlargement of the membership with 10 new states acceding. This has been a great benefit to them, in terms of economic and human development, but also in the grounding and the strengthening of the rule of law. Such an event was unimaginable just a few years before it actually happened. This helps explain how the accession, democratization and the rule of law are so intimately related, for these countries and every country in the EU.

The importance of the rule of law in trade agreements is perhaps not so self-evident. When negotiating such an agreement, the goal is not just to liberalize trade; it is also to improve the regulation of it. There can be no freedom of trade where the rules are not clear. To keep markets open to all, trade regulators must keep their policy tools sharp: to avoid discrimination and ensure fair competition for all, to avoid a tilted playing field that favors large markets or multi-national companies. The European Union already has agreements with South Korea, Colombia and Central American nations in place. Negotiations with Moldova, Georgia and Ukraine are now very controversial but Mr. Barroso is convinced that they will happen.

Diplomacy by itself is not enough; there must also be adequate mechanisms to resolve issues after the negotiation. In this sense, one of the biggest success stories is the WTO dispute resolution mechanism. So free trade and fair rules go together. The US and EU agree on this. The trans-Atlantic partnership is so important: it represents 33% of world trade, 50% of the world economy. It is just common sense to bring them together. Our societies are equal in values and our economies equal in size, so the negotiation and agreement will be between equals. There will be no imposition of standards or conditions. That is a key purpose of the Trans-Atlantic Trade and Investment Partnership: to set standards, expand values and align rules.

The key is to make both rules and systems compatible with each other without replacing one set for the other. Such a deal could add billions to the world economy. We believe free trade has a future, but it also goes hand in hand with a set of fair rules. Competition and confrontation must be replaced with cooperation.

100 years ago, not far from Brussels, the First World War began as a European war. During that war, millions of young people died; but now, 100 years later, the young people are voting.  This is a much better situation. 60 years ago, much of Europe was not even a democracy. Just 30 years ago, the East was under communist rule. Today, the EU is a community of 28 members, of democratic values. The EU has shown great resilience during the crisis: there was no Grexit, there was no fall of the Euro, despite the many predictions to the contrary. Leaders were able to put out the fires while at the same time building a stronger governance structure. Of course not every member state has the same influence, due to differences in economics, demographics, history: but the fact that the EU is based on the rule of law means that they are all treated with fairness, and that agreements are observed. The rule of law was not abandoned during the crisis. Without the rule of law, there is no freedom.

Mr. Barroso concluded his prepared remarks and opened the floor to audience questions.

Question: How are EU relations with Russia are evolving?

Answer: The EU is Russia’s largest trade partner, while the US is 28th. This makes a difference; meanwhile Russia is not the key trade partner with Europe, the United States is. EU has a great trade surplus with Russia in everything except energy, but this is a mutual dependency. These things have to be considered before talking about further measures against Russia. This is why the members have preferred to go with less restrictive measures so far. What is going to happen will depend on the political evolution in Ukraine; we have elections not only in the EU but also in Ukraine. If there is further escalation, the EU has promised to escalate its own sanctions. Let’s hope there is de-escalation. The sanctions are already having an effect; Russia is going into recession when they should be growing. Mr. Barroso says this with regret because for the past 10 years, he has been trying to build relationships with Presidents Putin and Medvedev. Both regions need each other, but politics have made this difficult.

Question: Oxfam has asked for increased transparency in the TTIP negotiations. Will TTIP undermine the rule of law and civil society’s ability to oversee it?

Answer: This is unfounded: Mr. Barroso respects the opinion, but is confident that the process will show that there is no risk of this. It is important that the EU and the US are both committed to democratic values, and that they show this commitment in the rules that come out of the negotiation. We are all proud of the open societies we have built. Regarding the negotiations, the EU has never been very open to the public: the negotiation mandate at the EU-level is defined by the member states, and the information is given back to the member states. The democratic process will be available to the public when the final deal is submitted to them to accept or to reject. There must always be discretion in political negotiations; even the decisions within a national government are not wholly open. They are arrived at through closed door negotiation and then submitted to the people or their representatives. Mr. Barroso can promise that all due safeguards are in place in the negotiations, and there will be a ratification process within the EU after the deal is agreed on, as well as in the US.

In areas where there are special sensitivities – GMO, consumer protection – there is concern that the EU will lower standards in order to secure a deal. This is not the case: negotiators are committed to no lowering of standards, and the feeling is that the US will not ask for this. There may be areas where we may need to agree to disagree, for example in hormone-injected beef. But for example, child safety is an area where we can agree to observe and accept the standards of the other: either through harmonization or through a system of mutual recognition, with verification. After all, for big multinational corporations, these rules are not a problem, they can adapt. It is a problem for the small and medium businesses, who cannot afford the lawyers and experts to adapt to all the different rules. This treaty will especially benefit the SME’s, who are the true job creators. Finally, before it can go into effect, the TTIP will need not only ratification of the member states, but also that of the EU Parliament that is being elected this weekend

Question: Sanguinetti, from Uruguay. Latin American unification has not always been as successful as EU. How does the Mr. Barroso see this process and the future?

Answer: Unfortunately, unification has not happened in LATAM for many reasons, among them political differences. There are now plenty of good things going on: the Pacto Andino, Unasur, for example. Mr. Barroso believes that the future will still be one of integration, because it is in the interest of the people and the nations. The EU has signed trade treaties with Colombia and Peru, but negotiations with Bolivia and Ecuador fell through because those countries were not ready; but it had been the EU’s intention to sign all four deals at the same time. Mr. Barroso hopes that the Mercosur pact will also soon be signed. He is expecting to exchange some offers with Mercosur very soon. Furthermore, the purpose of these agreements should not be to close parts of the world from other parts, but to progressively open up the whole trading system, for everyone’s benefit.


Trans-Atlantic Trade and Investment Partnership (TTIP) Panel Session
James Feinerman, Associate Dean for Transnational Programs
Joseph Burke, US Mission to the EU, Regulatory, Trade and Consumer Affairs Officer
Lother Ehring World Trade Institute, European Commission, DG Trade
Amy Porges, Law Offices of Amy Porges, Chair, Georgetown Law International Trade Update
Federico Ortino (L’97), Reader in International Economic Law at King’s College London

Joseph Burke: Mr. Burke wanted to address some of the key issues facing the TTIP negotiators. One of the biggest in this early stage is precisely the preoccupation with the issues facing TTIP. People seem inclined to focus only on those areas where the US an EU disagree. Of course we don’t see eye to eye on everything; but these differences exist within a strategic area in which we do agree substantially. There are four broad areas of agreement:

1. We agree on fundamental points of history and economics. The US and EU have forged deep strategic relationships between their governments, businesses and people. There are 13 million jobs that exist on both sides of the Atlantic due to trans-Atlantic trade. More trade and investment can lead to more growth and more jobs; while the jobs in export sectors tend to pay higher wages than those of internally focused businesses. This also represents more opportunities for our consumers as well, and will help promote innovation.

2. We agree on the importance of creating opportunities for small businesses. There are 28 million small and mid-sized businesses in the US and 20 million in the EU. These drive innovation and job creation in both economies. The current rules in place make it too difficult and costly for SME’s to access each other’s markets.

3. We agree on the need to address unnecessary regulatory differences. We have similar levels and similar commitments to regulatory safety. We both have the highest levels of regulatory protections in the world, and neither government will sign anything that lessens these.

4. We agree on the need to continue being leaders in the global economy. We need to be standard setters, because the world is not a static place and other nations also seek to be leaders. If we let them set the future standards, it will be to the detriment of American and European businesses. We agree that we need the global trading system to reflect our shared values and our shared interests.

With this in mind, there are of course some specific challenges that permeate the TTIP negotiations. The US government first commissioned a comprehensive study to see if it even made sense to pursue a free trade agreement with Europe. We engaged with stakeholders in business, as well as with stakeholders in Europe, and we concluded that the differences in the regulatory standards were the biggest challenge. The best way to avoid unnecessary divergence in these standards is to increase transparency and accountability.

Regarding our commitment to transparency in the negotiation process, the US lead negotiator says we should be able to publish and share drafts of rules when they can still be meaningfully commented upon by all stakeholders in civil society. The US is trying to get EU to increase transparency and lessen the ad hoc nature of their feedback process; this should not be taken as an attempt by the US to impose any sort of American way of doing things in the rule-making. Of course EU leaders and the European people need to determine the best way for EU institutions to craft and approve regulations. Everyone recognizes that increased transparency, accountability and participation will improve results. The TTIP recognizes that these process issues have wider implications and lay at the core of the negotiations, though they are often less “sexy” than some of the higher profile issues like GMO.

Federico Ortino: Mr. Ortino states that, from his perspective, the transparency with the negotiation process has been very positive, though limited. He believes that a broader sharing of drafts will make the subsequent vote for ratification easier. The negotiations around an investment protection agreement within TTIP offer a good case in point. The House of Lords EU commission issued a report that recommends to Her Majesty’s Government that there should be 2 conditions for an investment protection chapter in the TTIP: firstly, that supporters should provide evidence that the UK can attract more investment if they sign the TTIP than they do now. This is a controversial condition: the requirement is misplaced even if causality could be proved. The signing should be based principally on whether both parties agree on a set of rules of good governance that they are willing to abide by. The extension of the rule of law over these trade flows should not therefore be predicated on the existence or increase of trade flows. We know though that when things go wrong, foreign investors will be relying on those treaties and those rules. There is therefore a need to focus on the content of the investment protection treaties that are being negotiated. Both the US and the EU have taken steps to improve the standards that are included in those rules, but room still exists for improvement. Canada-EU treaty draft could be used as a model.

For example, making an investor-state dispute settlement (ISDS) structure available to companies could be subject to these companies agreeing previously to conform to certain corporate governance structures. The treaty would not oblige conformity, but it would provide a strong incentive. This is just a thought.

What is the overall approach and focus of the TTIP? Trade and Investment seem to be the focus, from the name, though this is same affirmation is lacking in the title of the Trans-Pacific Partnership. But we know that any time there are deeper economic ties, there are inherently wider political issues at stake. 80% of the increase in trade and investment will come from the reduction of non-tariff barriers, not the classical barriers to trade. The EU and the US know this, so in fact the TTIP is not just about trade and investment. There are not many documents available, but some recognize the dedication to sustainable development, labor unions, social welfare. We cannot yet judge to what extent this additional side of the TTIP will actually matter, and how much of an effect it will have. The House of Lords has really looked at the treaty from the view of jobs and growth; but there is room for other concerns. In order to get it right and focus on things that matter, perhaps there should be a stronger emphasis on the areas outside of trade and investment. If we want to make this the template of the future, it must be more than simply a template for a trade agreement.

Amy Porges (via Skype): What are the objectives of TTIP and where did it come from? Jobs and growth, in both markets. Trade in goods and services are $1 trillion per year, about $4 trillion in stock of FDI between continents. Between the two markets there are about 1 billion wealthy and educated people. So there is still more to gain. The idea is to reduce barriers to trade and investment by harmonizing regulatory policies and liberalizing services; we can improve competition in our own markets, but also in world markets.

The other objective is to set the XXIst rules for future bilateral treaties and the World Trade Organization. This could include rules on the movement of data, chapters on the environment, labor and competition policy. These are still very important rules. Studies indicate that the EU will experience future growth of 0.5% to 0.7%, with an increase in EU exports of 2.5% to 5.1%. This makes it a great place to invest, and jobs will flow to where the investments go.

TTIP is also a great opportunity for small businesses. Current regulatory differences are equivalent to a tariff barrier of 10% to 20%, according to a study commissioned by the Italian government. An approved product or service could have immediate access to two continental markets not just one; this would require strengthening testing and compatibility rules. There could be annexes to the treaty for sector-specific rules: like the chapter on electronics in the South Korean FTA, or on chemicals. These are still early days, and both the public and businesses need some time to get their heads around the idea. But when it happens, it will create a new regulatory authority that will have a huge impact worldwide. Manufacturers in the US and the EU have had problems with the Chinese government publishing Chinese specific standards with the intent of making these global standards. The TTIP could turn that around.

There are institutional and process differences in regulatory creation that create divergence. The EU tradition is more one of government-led bodies making standards top-down; the US model is one of company-led standards built mostly by engineering bodies and associations, or bottom-up. These bodies are subject to US antitrust regulations, which are serious. Because of these rules, the US has a very open system that anyone can participate in, even if they are not based in the US. What would we have in an ideal world? We would not presume that the only international standards are those made by the ISO; we would have a more open standards setting process – accepting submissions from anywhere in the world. Testing would happen once in either market. It would be an ongoing process whereby EU and US regulators would review areas where the regulatory regimes have common processes and values in order to facilitate harmonization. TTIP will be a living agreement where regulators on both sides of the Atlantic will be in constant contact.

Dispute settlement has not been focused on in either TTIP or TPP. All estimates of benefits are done on the basis of full compliance with rules and serious a disputes settlement process, but what that will be is not yet clear. Ms. Porges assumes that the dispute settlement mechanism will be similar to that of the US-ROK or EU-ROK agreements, based on the WTO mechanism. But there is need of a strong process that cannot be blocked, and EU stakeholders need to push for this as well.

Lothar Ehring: TTIP, yes trade and investment are the substantive, but what about “transatlantic partnership”? Of course, you can cross the Atlantic towards the south as well, but for the moment, we are talking about the North Atlantic. It is remarkable how high the public interest in these negotiations is.  There is a high probability that the language of this agreement will be very similar to that of other similar negotiations in that past, which drew no public interest whatsoever. However the EU negotiators are already getting letters from movie stars and directors, people who don’t usually write to trade negotiators. Every EU citizen feels sufficiently concerned and even threatened to take an interest: both on the investment protection protocols, but also on the potential loosening of regulatory standards. GMO, hormone-treated beef, etc… Very different perceptions exist on both sides of Atlantic over risk; it is a mistake to think that only Europe is interested in a high degree of protection, the examples go both ways. Risk perception is very subjective, even at the individual level, rather than based on objective probabilities. These decisions must therefore be made by democratically elected institutions; if you disagree with the decision that is the place to make your voice heard.

President Barroso already drew a comparison with other legislative processes, their openness and degree of public scrutiny. That is the right balance. At the very end, the final result is presented to the parliament. But we have to acknowledge that procedural criticism can be of two types: real criticism or transposed criticism because people don’t like the subject. For the moment, Mr. Ehring feels that the criticism is mostly of the second kind.

Reduction of the already low import duties will not make a great deal of difference in trade. Bilateral investment treaties have been signed between EU member states for decades without drawing criticism, but there is a greater degree of discomfort now that the negotiations are at the EU level, rather than being between national governments. There is criticism of giving greater rights to foreign investors than what the domestic stakeholders have, but that this the nature of the trade treaties, including the WTO. They protect foreign investors from the risks that the domestic investors do not have. The national governments already are protecting the rights of the domestic investors, or at least they should be.

The panelists concluded their prepared remarks and opened the floor to audience questions.

Question: Do you see a problem of lowering tariffs between the US and EU and then having big US corporations produce in Mexico and sell in Europe, instead of producing in Europe? Is this a concrete problem or not?

Answer: (Ms. Porges) Rules of origin are designed to reserve the benefits of the FTA to the signatories of the FTA. This is a delicate balance, and it is also complicated. Enforcement is expensive. (Mr. Ehring) Beyond rules of origin, the question goes back to very existence of the negotiation. But in fact the EU and Mexico have an FTA, whereas the US and EU don’t. So some of the EU-US trade that should be happening is already not happening, it is being diverted due to the 3 or 4% difference. This is an example of what economists call production displacement and it is considered inefficiency. So that shouldn’t be a problem with TTIP.

Question: Some people think that ISDS (investor-state dispute settlement) is dangerous because it would allow huge MNCs to force governments to withdraw public policy protections on areas like environmental or labor protection. Other experts say that this is not a risk, because ISDS is usually limited to areas of unfair competition, etc. Is this a credible risk?

Answer: (Mr. Ortini) ISDIS per se is not the problem, it is the substance: until we see the text, it is impossible to say. But we know the history of the 3,000 plus treaties already signed. There is a risk, but it depends on what the US and EU decide to sign. There should be lots of improvements in this area; in the US because of the NAFTA experience. It won’t be the end of the world, but we need to ensure that the rules do not unfairly limit public governance. In fact, investment protection is a misnomer; they are rules on how public policy should be made.

(Ms. Porges) Both the EU and the US are negotiating bilateral treaties with China. We need to understand that we are not going to get the Chinese to agree to rules that we do not agree to ourselves, so if we want to protect EU and US businesses in China, we need to think about how to apply these rules to the TTIP.

(Mr. Burke) Some of the issues are substantive, but some are political issues or perceptions. Some of these sometimes take on a life of their own. Some of the criticisms of ISDS are certainly worthy of discussion, but some of these are over the top. One person referred to ISDS as “the cancer in TTIP”. That is not constructive. Negotiators need to find the right balance to protect investors, but no one wants any agreement that allows investors to run roughshod over elected officials – especially not the elected officials who are negotiating the treaty!

(Mr. Ehring) The result of all of these negotiations tends towards limiting the scope for action of government. There is the question of how horizontal should these disciplines be? Good rules are important, but good institutions to interpret and enforce these rules are also fundamental. The addition of an appellate process to the TTIP dispute settlement procedure is crucial as the case history of the WTO shows.

Closing Address
Ricardo Ramirez-Hernandez, Chairman of the World Trade Organization Appellate Body

The WTO remains the preferred method of dispute resolution in world trade despite the proliferation of regional dispute settlement procedures through the multitude of bilateral agreements that have been signed over the past few years. Two of the most recent trio of TBT cases (technical barriers to trade) that have been decided could have been argued before a regional body, NAFTA; but the parties decided to go through the WTO. Both the TTIP and the TPP, in the sense of being “mega agreements,” could pose a risk to the established WTO mechanism. This cannot be determined because the dispute settlement mechanisms being negotiated for these agreements are not public; but besides the wording of the agreements, whether or not they are applied will depend on the continued success of the WTO in managing disputes.

The workload of the appellate body has increased very significantly since 1995. Although the workload is cyclical in nature, the trend is clear. The number of cases has increased, but so have the number of appeals. Also, the complexity of the cases has increased, with cases involving more and greater degrees of evidence in support of arguments, including economic studies, surveys and polls.

We are facing several challenges:

1. Disputes are fundamentally different from those of the early years of existence. They come in greater numbers, with a high incidence of appeals, of a more complex nature and with a greater amount of evidentiary material. Though all appellants should have their rights respected, a greater number of cases should be settled at first instance and this might require some reform;

2. The question of resources is also fundamental. There is no question that the decisions of the body should be significant and relevant, but the ability of the body to deliver these considered decisions is in question by a lack of resources.

The system is not yet at risk and the WTO panel and appellate bodies remain the most prestigious bodies for dispute settlement, but it is not a perfect system and we should not be satisfied with it. If necessary reforms are identified, they should be implemented in order to keep the body relevant into the future.

 

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Discussion

One Response to “EU and US Experts Comment on TTIP”

  1. Interesting article about TTIP
    http://www.the-dialogue.com/en/en43-thoughts-on-ttip/

    Posted by Red and blue | May 29, 2016, 10:41

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