Malmstroem Backs Dispute Regime, Cites Regulatory Compatibility Progress

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By Stephen Joyce

Sept. 25 —Europeans' suspicions of corporate activities, a push for diversified energy supplies and several parochial issues plus other pending trade deals are slowing progress toward concluding a major U.S.-European Union trade agreement, European Union Trade Commissioner Cecilia Malmstroem said in Sept. 24 and 25 speeches.

While Malmstroem has briefed U.S. Trade Representative Michael Froman on her proposal, introduced Sept. 16, to settle the controversial issue of how to resolve investor disputes for inclusion in the Transatlantic Trade and Investment Partnership (TTIP), formal discussions on the proposal will likely not begin until after the next scheduled TTIP negotiation session in October, she told Bloomberg BNA Sept. 24.

In the meantime, U.S. and EU negotiators continue to disagree on the importance of including an energy chapter in the pending trade and investment agreement, as they work on creating a technical advisory body to boost mutual recognition among regulators.

Work on ironing out differences between both negotiating teams continues, Malmstroem said. Indeed, before traveling to New York Sept. 24 after two days in Washington, Malmstroem said she instructed EU staff members to continue working with their U.S. counterparts on agreement language concerning sanitary and phytosanitary measures for food safety.

More generally, a delay in completing the trade deal will almost certainly occur if no agreement is reached during the Obama administration, Malmstroem said, but she added that a good deal is more important than one reached too expeditiously.

ISDS Remains Controversial

Malmstroem Sept. 16 unveiled her proposal to scrap the TTIP's investor state dispute settlement (ISDS) chapter and replace it with a resolution process similar to a domestic court system, with judges insulated from conflicts and a right of appeal.

“Of course investments need to be protected. Protected in an environment where they are not subject to discrimination or appropriation or nationalization. This needs to be done in a way that is comfortable for the public. So we have made clear in our proposal that governments can make policy choices. They can legislate to protect their citizens or the environment—something that can never be questioned by an investor,” Malmstroem told Bloomberg BNA.

The envisioned system would be “more of a court-like system with more transparency and more predictable processes,” she said. “We hope this will lead to a system that citizens can trust but still functions for investors,” she said.

Malmstroem expressed hope that the envisioned dispute resolution process not only would be made a part of the TTIP, but could be used as a model for non-agreement governments as well.

Another extant negotiation dispute is whether to include a chapter on energy, which Malmstroem said for Europe “goes far beyond economics.” While U.S. negotiators are resisting the inclusion of energy in the deal, European nations largely dependent on Russian oil and gas want to use the TTIP to help diversify their energy sources.

Other seemingly smaller issues, such as the protection of geographical indications, will likely be part of a negotiation end game, only to be resolved as part of a final push to complete negotiations, Malmstroem said.

Mutual Recognition

Differences in existing EU and U.S. regulatory regimes are another sticking point, Malmstroem said. For instance, some products have to be tested twice—once in the EU, once in the U.S.—to meet regulatory standards. Malmstroem is pushing the idea of mutual recognition of regulations, but only if both standards are high quality. Under the concept, a U.S. regulator would recognize a European regulator's conclusion that a product met a regulatory standard so that a second test conducted by a U.S. regulator wouldn't be needed.

Negotiators are looking into whether a mutual-recognition regulatory regime could be established in nine distinct areas, including automobiles, textiles, pharmaceuticals and chemicals, she said.

“We're not trying to harmonize regulations. We're seeing if we can recognize each others' tests. So if a business has had its factories inspected one time we don't have to do it again,” she said. Such a regime would not only facilitate additional trade but save companies—especially small- and medium-sized ones—time and money, she said.

An advisory group of largely technical specialists has been established to push for a broad plan of mutual recognition of regulations, with the hope that the specialists could advise the U.S. Congress and the European Parliament as those institutions formulate future legislation, Malmstroem said.

The 11th round of TTIP negotiations is scheduled to occur during the week of Oct. 19 at a U.S. location. The previous TTIP negotiation round was held during July in Brussels.

Running Out of Time?

Malmstroem acknowledged that material opposition to the TTIP exists, saying for some the agreement “has become the symbol, I think, of big corporate greediness, fair or unfair.”

Additionally, U.S. trade negotiators are simultaneously negotiating a second major trade pact, the Trans-Pacific Partnership (TPP). Malmstroem and other European officials have acknowledged the U.S. desire to first conclude the TPP and then move to finish TTIP negotiations.

If TTIP negotiations drag on for more than a year, a “pause” of up to six months could occur as a new U.S. administration—Democratic or Republican—is put in place in January 2017, Malmstroem said.

“In the end it has to be a good deal. It cannot only be a fast deal, it has to be a good deal that the U.S. administration can defend in front of Congress and that I can defend in front of 28 member states,” she said.

Malmstroem said she's in contact with many Republicans on Capitol Hill, among whom she has gauged broad support for the TTIP. So even in the event the deal isn't finalized during the Obama administration and the White House switches to Republican control as a result of 2016 U.S. elections, “I don't think we'll have to start over” in TTIP negotiations, she said.

Malmstroem spoke Sept. 24 at an event in New York sponsored by the European Liberal Business Club, and Sept. 25 at Columbia University in New York.

To contact the reporter on this story: Stephen Joyce in New York at sjoyce@bna.com

To contact the editor responsible for this story: Jerome Ashton at jashton@bna.com