Explaining the importance of the TTIP

Transatlantic trade policy has for the past couple of years been synonymous with the negotiations for the proposed free trade agreement between the EU and the U.S., the Transatlantic Trade and Investment Partnership (TTIP). Officials on both sides of the Atlantic aimed to strengthen the economic connections between the EU and the U.S., which already are the strongest in the world.

The highly integrated transatlantic market continues to be the largest and richest in the world and continues to be the dominating driver of the global economy. The often-discussed rise of some Asian nations is reflected in trade and investment relations as well1For example, Chinese investment in the U.S. was $9 billion in 2014 compared to European investments of over $1.7 trillion.16U.S. Bureau of Economic Analysis. (2016). Balance of Payments and Direct Investment Position Data: Foreign Direct Investment in the U.S., Foreign Direct Investment Position in the United States on a Historical-Cost Basis By Country Only. U.S. Department of Commerce. Retrieved November 29, 2016, from http://www.bea.gov/iTable/iTable.cfm?ReqID=2&step=1#reqid=2&step=10&isuri=1&202=1&203=22&204=4&205=1,2&200=2&201=1&207=49,48,43,42,41,40,39,38,37,36,35,34,33,32&208=2&209=57. U.S. exports of goods and services to China were $165 billion in 2015, while those to the EU totaled $500 billion2U.S. Bureau of Economic Analysis. (2016, September 2). U.S. Trade in Goods and Services by Selected Countries and Areas, 1999-present. U.S. Department of Commerce. Retrieved November 29, 2016, from http://www.bea.gov/newsreleases/international/trade/trad_geo_time_series.xls., but it does not come close to the volume of EU-U.S. trade and investment (see the posts on trade data and on investment statistics).

In the words of sociologist Saskia Sassen, the transatlantic region is the “centre of gravity”3Sassen, Saskia. (2004). The Locational and Institutional Embeddedness of the Global Economy. In G. A. Bermann, M. Herdegen & P. L. Lindseth (Eds.), Transatlantic
Regulatory Co-operation: Legal Problems and Political Prospects (pp. 47-97). Oxford:
Oxford University Press. Here: p. 95.
for the global economy. This gravitational center functions without being organized in any institutionalized or formal bilateral fashion, leading either to the conclusion that the transatlantic relationship is so strong that such a bilateral treaty is not necessary or to the inference that the connection lacks deep commitment.4Featherstone, Kevin & Roy H. Ginsberg. (1996). The United States and the European Union in the 1990s: Partners in transition (2nd ed.). Basingstoke: Macmillan. Here: p. 132. In any case, transatlantic trade and investment relations have been guided solely by multilateral negotiations or sector-based bilateral agreements. This setup has led to some cooperative policy learning but has also exposed the transatlantic partners to long-standing unsolved trade disputes carried out at the World Trade Organization (WTO). The number of trade disputes has grown over time, but it is still relatively small, occurs in few industries and usually concerns low values of trade when compared to the much bigger – and less disputed – investment relationship. Overall, transatlantic trade and investment has faced few interruptions caused by bilateral disagreements, but the two partners have, over time, repeatedly sought more institutionalized manners of exchange.

The TEC and High-Level Working Groups on Jobs and Growth: Little State Representation

In the 1990s, plans of a transatlantic area of free trade and investment flows had been floated, which never led to any deepened institutionalized setup, however. These ideas were only revived in 2011, when the two transatlantic partners sought a formalized relationship with the start of the TTIP negotiations. Knowing about the enormous trade and investment relationship that already existed between the EU and the U.S., the two sides aimed to further integrate their markets by negotiating a free trade agreement (FTA).

The groundwork for such an agreement was laid by national and supranational transatlantic leaders with little influence by the U.S. states or European constituent regions. In April 2007, the European heads of state, represented by European Council President Angela Merkel and European Commission President José Manuel Barroso, and U.S. President George W. Bush came together for their annual EU-U.S. Summit and put the wheels in motion for what would later become the TTIP proposal. The summit resolution on economic issues, called Framework for Advancing Transatlantic Economic Integration between the European Union and the United States of America, was presented by the three highest-level leaders on both sides of the ocean and has the transatlantic economy as a whole in mind. Its goals and content are similar to what would later be the basis for the TTIP: The framework confirms the strong historical, political and economic ties between the EU and U.S. and calls for broad measures of cooperation in regulatory matters.

To drive and oversee the goals from the framework, the three politicians founded the Transatlantic Economic Council (TEC). Even though the TEC had the “ultimate objective of achieving a barrier-free transatlantic market”5Alemanno, Alberto. (2011). How to Get Out of the Transatlantic Regulatory Deadlock Over Genetically Modified Organisms? In D. Vogel & J. F. M. Swinnen (Eds.), Transatlantic Regulatory Cooperation: The Shifting Roles of the EU, the US and California (pp. 200- 226). Cheltenham: Edward Elgar. Here: p. 212., the progress made was comparatively small-scale. The officials focused, for example, on a work plan for e-mobility, joint standards for energy efficiency certifications and closer regulatory cooperation for research bodies in the EU and the U.S.6Transatlantic Economic Council. (2011, November 29). EU-U.S. Transatlantic Economic Council Joint Statement. Retrieved April 14, 2016, from http://trade.ec.europa.eu/doclib/docs/2011/november/tradoc_148385.pdf.Political science scholar Leif Johan Eliasson judges that the few legally binding agreements, letters of understanding and stated intentions were important but that “progress came in part by avoiding the most challenging issues.”7Eliasson, Leif Johan. (2014). Problems, progress and prognosis in trade and investment negotiations: The transatlantic free trade and investment partnership. Journal of Transatlantic Studies, 12(2), 119-139. Here: p. 124. Nevertheless, the TEC is regarded as the only formally institutionalized transatlantic dialogue on the national and supranational level and it became a means to refocus transatlantic partners on their relationship during the financial crisis between 2008 and 2012.

The input by U.S. states – and European regions, for that matter – was very minute, however. The TEC is co-chaired by a U.S. Cabinet-level official in the Executive Office of the President and a member of the European Commission.

At the time of its foundation in 2007, the co-chairs were Allan Hubbard, Director of the National Economic Council, and Günter Verheugen, European Commissioner for Enterprise and Industry. The top-level annual TEC meetings, which these two officials co-chaired, did not include any state representatives but were composed of other European Commissioners and U.S. Secretaries and national agency heads. The U.S. states therefore had no direct input into this coordinating body.

The framework did call for the inclusion of a broad range of stakeholders, especially from the existing transatlantic dialogues, the Transatlantic Legislators Dialogue, the Transatlantic Business Dialogue, the Transatlantic Consumers Dialogue, and from labor representatives. But U.S. states have only minor and indirect openings here: The Transatlantic Legislators Dialogue brings together members of the U.S. Congress and members of the European Parliament but does not include noncentral governmental actors. The other dialogues, including the Transatlantic Business Dialogue (today Trans-Atlantic Business Council) as the most prominent, long-standing and institutionalized one, also do not count state governments among their members.

President Obama announces the start of the TTIP negotiations

Apart from the annual meetings among European Commissioners and U.S. Secretaries, high-level working groups were founded, which soon gained considerable flexibility and discretion in how they worked and with what stakeholders. These working groups were made up of cabinet-level national and supranational officials and sought input from a variety of stakeholders. The most consequential working group for the future TTIP negotiations was the High-Level Working Group on Jobs and Growth. At the 2011 EU-U.S. summit, the national and supranational leaders decided to launch this High-Level Working Group and tasked it with “identify[ing] and assess[ing] options for strengthening the US-EU trade and investment relationship, especially in those areas with the highest potential to support jobs and growth.”8European Commission. (2011, November 29). EU and US boost economic partnership. Retrieved April 14, 2016, from http://trade.ec.europa.eu/doclib/press/index.cfm?id=757. It was co-chaired by the USTR and the European Commissioner for Trade, again leaving no room for U.S. states or European regions for direct representation.

By announcing his intention to engage in free trade talks with the EU, President Obama set in motion a formal political process in U.S. federalism for negotiating trade deals. Such international trade agreements are a federal matter in the United States. The commerce clause in the constitution gives Congress the power to regulate trade with other nations, which can be justified as one way of regulating interstate commerce and thus includes treaties and trade agreements with other countries.

Trade agreements are either negotiated as treaties or as executive agreements, but in both cases, the federal government is allowed to bind the states to the agreement’s obligations.9Tangeman, A.J. (1996). NAFTA and the Changing Role of State Government in a Global Economy: Will the NAFTA Federal-State Consultation Process Preserve State Sovereignty? Seattle University Law Review, 20(243), 243-270. Here: pp. 252-253. The official and formal procedure for trade agreements begins with the U.S. federal government negotiating a treaty with foreign countries. Once a deal is reached, the U.S. Senate needs to ratify the treaty with a two-thirds majority. For the TTIP, however, the formal negotiations procedure was not in place, but the more common process of creating an executive agreement was chosen.

For such an agreement, President Obama received fast track authority. This only happened after a political struggle that states were only marginally involved in and that was particularly long and strenuous due to the nature of the divided government during Obama’s presidency (see figure in the text). Under fast track authority, the White House still leads the trade negotiations with foreign nations, but Congress can only vote the negotiated agreement up or down: No amendments are possible, either the legislators vote for the entire trade deal or they reject it in its entirety.

Before any trade deal ever comes before Congress, it has to be negotiated and the executive agency tasked with this is the Office of the United States Trade Representative (USTR). Appointed by the president with the advice and consent of the Senate, the head of the USTR is a federal-level official charged with leading all trade negotiations. In 1962, the responsibilities for conducting trade negotiations shifted from the State Department to the newly created Office of the Special Trade Representative in the Executive Office of the President. Congress played a crucial role in creating the office, which remains responsive to both the federal administration and Congress. Members of Congress were keen on improving their say in trade matters, but the USTR has developed into an office closer to the executive than the legislature.10Pigman, Geoffrey Allen. (2004). Continuity and change in US trade policy, 1993-2003. In B. Hocking & S. McGuire (Eds.), Trade Politics (2nd ed., pp. 304-316). London: Routledge. Here: p. 307. The USTR’s authority and tasks were expanded in the late 1970s and 1980s and today, renamed Office of the United States Trade Representative, the office has a staff of about 200 in Washington, D.C., Brussels and Geneva, Switzerland. Eight different committees advise the USTR on a variety of sectoral and social issues, one of them being the Intergovernmental Policy Advisory Committee on Trade or IGPAC for short. It gives recommendations and advice from state and local officials to the USTR (see the separate post on the IGPAC).

Already in its interim report in 201211EU-U.S. High Level Working Group on Jobs and Growth. (2012, June 19). Interim Report to Leaders from the Co-Chairs. European Commission. Retrieved April 14, 2016, from http://trade.ec.europa.eu/doclib/docs/2012/june/tradoc_149557.pdf., the High-Level Working Group called for a comprehensive transatlantic trade agreement and these recommendations were reiterated and detailed in its final report, issued February 11, 2013.12EU-U.S. High Level Working Group on Jobs and Growth. (2013, February 11). Final Report of the High Level Working Group on Jobs and Growth. Retrieved April 14, 2016, from http://trade.ec.europa.eu/doclib/docs/2013/february/tradoc_150519.pdf. Only a day later, U.S. President Barack Obama disclosed his intentions to start negotiations on the TTIP. It was a very brief, one-sentence remark: “I’m announcing that we will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Union – because trade that is fair and free across the Atlantic supports millions of good-paying American jobs.”13Obama, Barack. (2013, February 12). Remarks by the President in the State of the Union Address. The White House. Retrieved March 23, 2016, from https://www.whitehouse.gov/the-press-office/2013/02/12/remarks-president-stateunion-address. But it was delivered on a highly visible stage: his 2013 State of the Union address. Another day later, the national and supranational leaders of the U.S. and the EU made a joint announcement on the intended negotiations.

The High-Level Working Group’s report strongly recommended a comprehensive, ambitious trade agreement and not just incremental, partial steps towards more cooperation. The areas identified for cooperation were:

  • Market access: Elimination of tariffs, liberalization of services and investment and, crucial from states’ perspectives, opening access to government procurement
  • Regulatory issues and nontariff barriers: Prevention of nontariff barriers to trade, cooperation on sanitary and phytosanitary (SPS) issues and technical barriers to trade (TBT) and, again crucial for the states, a framework for future regulatory cooperation
  • Shared global issues: Cooperation on issues on which the U.S. and the EU have rather similar views as opposed to other global players, such as intellectual property, environment, competition laws, customs, subsidies and transparency

The last point hints at the geopolitical aims the EU and the U.S. had with the TTIP: In the face of a financial crisis and growing competition from developing countries, the two transatlantic partners want to use the proposed agreement to cement their global leadership role in trade and investment rule-making. Yet, at the core of negotiations were not global political considerations but trade and investment issues.

The bone of contention: Nontariff barriers to trade

The key focus of the High-Level Working Group, which was to become the focus of the TTIP negotiations, was mostly on nontariff barriers (NTBs) to trade. Tariff reductions or eliminations were part of the talks, but since tariffs between the EU and the U.S. were already quite low for most industries before the start of the negotiations, the most consequential and controversial discussions were centered around NTBs. Because of its ambition to address most parts of the transatlantic economy and its emphasis on NTBs, the TTIP is considered a deep free trade agreement. Deep FTAs include “a broad set of rules and disciplines governing areas such as investment regimes, technical and sanitary standards, trade facilitation, competition policy, government procurement, intellectual property, environment protection, migration, labor rights, human rights, and other ‘behind the border’ issues.”14Chauffour, Jean-Pierre & Jean-Christophe Maur. (2011). Beyond Market Access. In J.-P. Chauffour & J.-C. Maur (Eds.), Preferential Trade Agreement Policies for Development: A Handbook (pp. 17-36). Washington, D.C.: World Bank Publications. Here: p. 17.

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If you have comments or questions, please feel free to get in touch via e-mail at research@transatlanticties.com (PGP-Key).

The nature of the TTIP as a deep free trade agreement covering a wide array of policies and nontariff barriers is of immediate importance to the states in two related ways: The states want the European market to be as open as possible (meaning as little NTBs as possible), so that companies from their states have the best opportunities to export to Europe. Many of the trade barriers in the EU identified by the USTR, for example, directly concern market access issues for industries that are valuable for some states, such as beef or citrus fruit. At the same time, U.S. states want to prevent any infringement on their own regulatory power, as some of the NTBs that the Europeans want to tackle stem from state-level laws and regulations and not federal rules (see, for example, the post on the issue of public procurement).

What's next for the TTIP talks?

With the emphasis on NTBs, states have to strike a balance between gaining market access in Europe and protecting their own state regulations. Considering the two sides of market access issues explained above, a comprehensive free trade agreement, which removes many market barriers, could offer great economic potential for states and their domestic enterprises. It might conversely impinge on existing state legislation and states’ power to legislate and regulate in general.

Because the conclusion of the TTIP talks is still outstanding, the potential drawbacks and benefits of the proposed agreement on states cannot be evaluated. In total, the EU and the U.S. came together for 15 rounds of negotiations, the last one shortly before the end of the Obama administration. Obama, the only U.S. president to negotiate the TTIP, was an initiator and supporter of the deal. His successor Donald Trump, however, wants to completely overhaul U.S. trade policy, including international trade agreements: Among Trump’s first executive actions as president was the withdrawal from the Transpacific Partnership (TPP) and a renegotiation of the NAFTA began in August 2017, while the administration was “evaluating the status”15Office of the U.S. Trade Representative. (2017a, March). 2017 Trade Policy Agenda and 2016 Annual Report. Retrieved March 7, 2017, from https://ustr.gov/sites/default/files/files/reports/2017/AnnualReport/AnnualReport2017.pdf. Here: p. 136. of the transatlantic trade negotiations. It therefore still remains to be seen how states’ economies and societies will be affected by a TTIP agreement.