By Rossella Brevetti
Jan. 6 — The Transatlantic Trade and Investment Partnership (TTIP) negotiations are expected to kick into high gear in 2016, with both sides doubling down on trying to finish talks during the last year of the Obama administration and rejecting the concept of a “TTIP light,” which officials said would be hard to sell to Congress and the European Parliament.
One source familiar with the negotiations said conclusion in 2016 is “very desirable, but certainly not at the price of sacrificing the ambition.”
Neither the U.S. nor the EU wants a TTIP-light, the source said, adding that the TTIP “only makes sense if it is an ambitious, comprehensive and balanced agreement.”
EU Ambassador to the U.S. David O'Sullivan said that, if all goes well, TTIP could be concluded sometime in 2016 but probably would not take effect until 2018.
The two sides are still far from the point of reaching the “endgame” of negotiations, where sensitive political issues are addressed, one source said. The endgame is only possible once the middle-game is over, the source said, pointing to the need for clear instructions from U.S. Trade Representative Michael Froman and European Trade Commissioner Cecilia Malmstroem by mid-2016 on how to focus on the most politically challenging issues.
Endgame issues include geographical indications, certain agricultural tariffs and sensitivities on government procurement and financial services. The EU will continue to ask for “exceptions in agriculture — beef, sugar, poultry and pork,” Malmstroem said. The U.S. is expected to push back on carve-outs for agricultural products. Food safety issues also will be difficult to resolve. U.S. and EU officials will convene a high-level working group in early 2016 to discuss geographical indications.
The next TTIP round is expected to take place the week of Feb. 22 in Brussels. Having credible initial offers on procurement would be an important advance in the talks, one source told Bloomberg BNA. The two sides also need to advance consolidated texts and proposals in the areas where they have not yet done so, sources told Bloomberg BNA. Discussions on regulatory cooperation in specific sectors — pharmaceuticals, medical devices, cosmetics, textiles, cars, information and communication technology, engineering, chemicals and pesticides—will require clear and concrete ideas about what the outcome will be in specific sectors, the source said, commenting that this would be an important milestone to reach in the February talks.
Asked to predict the likely outcomes, O'Sullivan—in a telephone interview with Bloomberg BNA—said the Danish physicist Niels Bohr correctly stated that prediction is extremely hazardous, especially when it comes to the future. O'Sullivan was bullish on the possibility of reaching the middle-game in February, meaning that all issues are up for discussion and negotiation and there is an idea of what the final deal will look like.
“The objective is to get to the point where we have mapped the full scope of the agreement and all issues are on the table,” he told Bloomberg BNA.
The endgame issue will be mapped out in less detail than areas where agreement can be reached sooner, O'Sullivan added.
An important part of the middle-game discussions would be a credible offer from the U.S. side on government procurement, he said. “We expect to see an ambitious and meaningful offer as was discussed in the high-level working group when we were preparing these negotiations,” O'Sullivan said. This means an offer that significantly improves European access to the U.S. procurement market, which O'Sullivan said is currently subject to restrictions at both the federal and subfederal level.
Tim Bennett, director general and chief executive officer of the Transatlantic Business Council, told Bloomberg BNA that wrapping up TTIP was doable by late 2016. Waiting until 2017 to close negotiations could close the window of opportunity, he said.
Bennett expressed “strong skepticism” that TTIP talks could be restarted once the current U.S. administration leaves, as 2017 will be focused on putting a new Cabinet in place. Also, Germany and France—key TTIP countries—will hold elections in 2017. For these reasons, it will be difficult to get back to the negotiating table in 2017, he said. The political difficulty increases on the European side as additional time elapses, he said.
Congressional ratification of the Trans-Pacific Partnership (TPP) would “clear the deck” for earlier consideration of the TTIP, one source said. If the TPP is ratified by Congress in 2016, this would make it easier to get into the endgame of negotiations on TTIP, the source said.
O'Sullivan said there is no direct relationship between the TTIP and the completed Trans-Pacific Partnership. If the TPP is approved in 2016, that “would certainly add momentum,” O'Sullivan said. If the TPP takes longer, the EU will still push for the conclusion of TTIP negotiations with the Obama administration. The EU is currently negotiating with a number of TPP partners, he said, noting that countries are capable of negotiating multiple agreements simultaneously.
In Bennett's view, congressional review and consideration of the TPP will not interfere with the TTIP negotiating process. Some of the TPP provisions could provide guidance in the TTIP, Bennett said, citing TPP provisions on intellectual property, state-owned enterprises and e-commerce.
Congressional consideration of the TTIP would not come before 2018, Bennett speculated, pointing out that translating the final agreement could take some nine to 12 months on the EU side. Review procedures in the U.S. also need to be completed under the trade promotion authority statute, including an International Trade Commission report, he said. On the EU side, Bennett speculated that the European Parliament would vote in February or March 2019 at the latest. Elections in Europe's Parliament will take place in May 2019.
The European Commission has proposed reforming the investor-state dispute settlement (ISDS) system by establishing an appeal mechanism and an international court. The ISDS proposal has been criticized in the U.S. by business associations and on both continents by nongovernmental organizations claiming that it does not go far enough. U.S. and EU negotiators will engage in substantive discussions on the new EU proposal in February. The ISDS mechanism allows companies to seek compensation from foreign governments on the basis of commitments in the trade agreement through international tribunals.
The Commission proposal will cause pushback in some areas, such as the international court, but issues such as increased transparency, third-party participation and rules to avoid conflicts for arbitrators have already been worked through by the U.S. in its model bilateral investment treaty review, Bennett told Bloomberg BNA. ISDS provisions can be successfully negotiated, Bennett said, speculating that ISDS would not be an endgame issue.
The U.S. will have to digest and react to the EU proposal, O'Sullivan said. Some parts will be harder to accept than others, but the public consultation process in Europe has resulted in a situation where the EU is now willing to negotiate an ISDS clause, he said. The TPP contains certain “evolutions” on the ISDS clause, he said. With constructive discussion on both sides, O'Sullivan voiced confidence that the parties could craft an ISDS clause that would be acceptable to both sides. An acceptable outcome on the ISDS issue will be a very important criterion when the TTIP is judged by constituencies in Europe and the European Parliament, O'Sullivan said.
Building on the tariff offers, delving into the investment proposal, moving forward on regulatory cooperation and starting to build toward final agreement, and clarifying where Froman and Malmstroem need to step in and give guidance will be important mileposts for the next round, Bennett said. For the difficult political issues, the EU needs to get approval from the EU Council representing the 28 member states, Bennett said. That additional step is needed for approval on the EU side.
The major benefits of a completed TTIP would be harmonization of regulations, including customs procedures related to the release of goods, Eugene Laney, head of international trade affairs for DHL Express, told Bloomberg BNA. One issue that should be addressed is harmonizing de minimis thresholds relating to the import of small, low-value consignments into the European Union. The EU de minimis is less than $200. “It's a tough issue that we've been trying to find a solution for,” Laney said.
The pending Trade Facilitation and Trade Enforcement Act of 2015 would raise the current $200 de minimis threshold in the U.S. to $800. “We are seeking a Customs de minimis that protects importers from the imposition of ‘all' taxes and duties at the border, including [value added taxes (VAT)]. There have been proposals by some for a de minimis that provides no ‘customs' taxes and duties; however, VAT would be applied,” Laney told Bloomberg BNA.
Another key issue relates to a single window for trade data, Laney said. While the U.S. is moving quickly, the EU has not progressed as fast. Laney said trying to ensure that the EU moves in that direction is critical. He acknowledged that it is unclear whether the TTIP would include specific text in this area. Better aligning the EU's Authorized Economic Operator (AEO) program with U.S. Customs and Border Protection's Customs and Trade Partnership would enhance the security capacity of both regions. Laney said the AEO program should be strengthened
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