The Transatlantic Trade and
Investment Partnership |
Chapter 1: Introduction
Purpose and Scope of this Inquiry,
Structure of this Report
1. The Transatlantic Trade and Investment
Partnership (TTIP) is the most ambitious trade and investment
pact ever attempted, due to both its scale and its significance
for the transatlantic relationship between the European Union
and the Unites States. Our intention in conducting this inquiry
has been to examine the prospects of the European Union (EU) and
the United States (US) being able to conclude an agreement that
fulfils that potential, and to explore what they wish to achieve
by doing so. We also set out to examine the UK Government's approach
to the negotiations, with a view to presenting our assessment
of the prospects of making progress in some of the areas they
have identified as UK priorities. We have at the same time sought
to explore a number of concerns about the possible adverse effects
of an agreement that have been brought to our attention, and present
our conclusions on which of those concerns appear to us well-founded
and which do not.
2. We hope that our report will
make a timely contribution to public debate as the potential outline
of an agreement begins to take shape now that the initial phase
of negotiations between the EU and the US and the first political
"stock-take" led by the European Commission and the
US Trade Representative have taken place. We also intend that
the evidence we present and the conclusions and recommendations
we draw from that evidence should serve to inform the House, the
UK Government and the European Commission as negotiations begin
to gather pace after European Parliament elections, mid-term elections
to the US Congress and the appointment of a new Commission.
3. Our report first sets out the
background to the evidence we have gathered in the course of our
inquiry, including a chronology of events and milestones in the
negotiations thus far and facts and figures about a prospective
TTIP agreement. We then turn to our witnesses' views on the objectives
that could be pursued by means of an EU-US trade and investment
deal, as well as the evidence we have received on outcomes to
be avoided (Chapter 2). In a third chapter, we examine the prospects
of making progress in the areas that the UK Government have identified
as top priorities, and also highlight the issues that our witnesses
identified as most challenging and therefore most likely to hold
up the conclusion of an overall deal. Finally, we turn to the
process of reaching an agreement, including our witnesses' views
on the timetable envisaged, on engagement and communication with
interested parties and the public, and on the political impetus
likely to be required.
4. The inquiry that led to this
report was carried out by the Sub-Committee on External Affairs,
whose members are listed in Appendix 1. We received written evidence
and heard oral evidence from a wide range of witnesses, who are
listed in Appendix 2. We are grateful to them all for their contributions.
We would also like to thank those who facilitated our visits to
Brussels and Washington. We are particularly indebted to Dr Dennis
Novy, our Specialist Adviser on this inquiry.
5. We make this report to the
House for debate.
The road to TTIP
6. Negotiations on a Transatlantic
Trade and Investment Partnership between the EU and US were launched
in June 2013 at the G8 summit on the shores of Lough Erne. UK
Prime Minister David Cameron described a prospective deal as a
"once-in-a-generation prize" that could be "the
biggest bilateral trade deal in history; a deal that will have
a greater impact than all the other trade deals on the table put
together." He went on to suggest that an agreement "could
add as much as £100 billion to the EU economy, £80 billion
to the US economy, and as much as £85 billion to the rest
of the world". European Commission President Barroso described
the negotiations between the EU and US as an opportunity to "write
the next chapter of what is our common history", while President
Obama presented them as a chance to "forge an economic alliance
as strong as our diplomatic and security allianceswhich,
of course, have been the most powerful in history."
7. The rhetoric is all the more
ambitious when one considers the starting point for this endeavour.
The European Union and the United States already have the largest
bilateral trade relationship in the world. Each is the other's
largest export market, and investment ties across the Atlantic
are robust: the US invests considerably more in the EU than in
all of Asiathree times more according to the European Commissionwhile
the EU invests considerably more in the US than in China and India
combinedeight times more. These economic ties are even
more pronounced in the case of the UK: the US and the UK are each
other's largest foreign investors, and those investments are estimated
to support around one million jobs in each country.
8. Nor is this the first time that
an EU-US trade pact has been contemplated. Between 1994 and 1996,
a Transatlantic Free Trade Area (TAFTA) was under discussion,
but formal negotiations were never launched. According to the
UK Government, this was because the priority at that time was
"to ensure the stability of the newly formed World Trade
Organisation (WTO) and to avoid creating a fault line in global
Lord Brittan of Spennithorne QC, European Commissioner for Trade
at the time, placed the emphasis elsewhere, telling us that, while
the US Administration and EU member states had been "very
interested" in proceeding down this route, the American regulatory
agencies had posed "the real obstacle", as they were
hostile to an agreement, and the US Administration felt they could
not take them on. Lord
Brittan went on to warn us that he had "not seen any evidence
of a change either in their views or in their power".
9. Professor Baldwin of the
Graduate Institute, Geneva, suggested that this latest attempt
to set up a transatlantic free trade agreement was different.
In his view, there is a geostrategic dimension to the TTIP initiative
to the extent that, in addition to the commercial interest that
has always been there, there is now "a high-level interest
that this might rewrite the rules of the world trading system
in a way that is pro-Europe and pro-North America."
He noted that around 1990 the ICT revolution had changed the nature
of trade in the sense that it allowed stages of production that
once took place within a factory to be dispersed overseas. The
effect had been to change the nature of trade, so that the trading
system is now "being used to make things, not just sell things."
This in turn changed the nature of trade agreements, he suggested,
providing the impetus for regional agreements underpinning those
production chains that include deeper, "21st-century"
trade disciplines. Professor Baldwin went on to suggest that
the TTIP was a step towards "knitting together" at the
multilateral level these deeper agreements.
10. The UK Government also take
the view that an EU-US trade deal is "an idea whose time
has come". This time around, driving forward the TTIP "will
not be at the expense of the WTO agenda." Moreover, the domestic
economic backdrop on each side of the Atlantic creates an incentive
to seize every opportunity to "create both growth and jobs
without taxpayers' money." Consistent with this view, the
UK Government describe themselves as "instrumental"
in putting the TTIP on the EU's negotiating agenda.
The launch of negotiations at the Lough Erne resort may thus be
seen not as a coincidence, but as an indicator of the importance
that the UK Governmentwith cross-party supportattach
to the initiative. With the support of the UK Government and other
EU member states, an EU-US 'High Level Working Group on Jobs and
Growth' was set up following an EU-US Summit in 2011, and tasked
with identifying ways of increasing trade and investment across
the Atlantic. The groupco-chaired by the US Trade Representative,
then Ron Kirk, and the EU Trade Commissioner, Karel de Guchtpublished
their final report, recommending the launch of negotiations on
a comprehensive trade and investment agreement, in February 2013.
US President Obama, European Commission President Barroso and
European Council President Van Rompuy accepted the recommendation
in a joint statement days later.
Launch and Conduct of EU
· Trade policy is an exclusive
competence of the European Union, meaning that the European Commission
negotiates international trade agreements on behalf of EU member
· The Commission requests formal
authorisation from the Council of Ministers to open negotiationsa
request also shared with the European Parliament.
· The Council adopts negotiating
directives, which authorise the Commission to negotiate on behalf
of the EU.
· The negotiating teams on
each side are led by a Chief Negotiator at official levelin
the case of the TTIP, this is Ignacio Garcia-Bercero from DG Trade
on the EU side and Dan Mullaney from the Office of the US Trade
Representative on the US side. The teams include experts covering
all the different topics under negotiation, in the EU's case drawn
from across the Commission.
· The Chief Negotiators set
up negotiating rounds, normally alternating between the EU and
the other party's country, at flexible intervals.
· At key points in the negotiations,
the politicians formally overseeing the negotiations will meet
for political 'stock-takes'in the case of the TTIP these
are EU Trade Commissioner, Karel De Gucht, and US Trade Representative
· The treaty under negotiation
will typically contain chapters on each topic and a number of
annexes. These include the schedule of tariff liberalisation,
sectoral agreements and protocols.
· The draft texts under negotiation
are not made public during the negotiating stage, even when chapters
(topics) are "closed", as the negotiation is not over
until everything is agreed. EU member state governments and selected
members of the European Parliament's trade committee have access
to all EU texts, butat the United States' insistencenot
to US texts.
· For more on the signature
and ratification of EU trade agreements, see Chapter 4.
Under the bonnet
11. After their formal launch at
the G8 meeting at the Lough Erne resort, EU-US negotiations began
in earnest in a first negotiating round held in Washington in
July 2013 (see Box 1). A further three negotiating rounds have
since taken place, the latest of which was held in Brussels in
March. The fifth round of negotiations will take place later in
May, with a further round to follow in July, and a second political
"stock-take" scheduled for September.
12. The European Union has exclusive
competence to legislate on trade matters and conclude international
trade agreements under Articles 207 and 218 of the Treaty on the
Functioning of the European Union, which in practice means that
the European Commission conducts negotiations with the EU's counterpartsin
this case the USon behalf of the EU as a whole. It does
so within the constraints of the negotiating mandate set for it
by the EU member states acting through the Council of Ministers.
Since the entry into force of the Lisbon Treaty, the EU competence
to conclude international trade agreements includes agreements
on foreign direct investment.
13. Prospective trade agreements
negotiated by the Commission must be presented to the Council
of Ministers for agreement before they can be signed, and the
European Parliament must also give its consent before they can
be formally concluded.
14. The European Commission's negotiating
mandate (technically "negotiating directives") for the
TTIP, adopted in June 2013 by the Council of Trade Ministers,
has not been made public, but its main elements are set out in
Box 2. Broadly speaking, there are three areas in which negotiations
are underway: market access, regulatory issues and non-tariff
barriers, and trade rules around "shared global challenges".
What is under negotiation:
main elements of the EU mandate
objective is to get as close as possible to removing duties on
transatlantic trade in industrial and agricultural products
Rules of Originthe
objective being to reconcile EU and US approaches to rules of
origin, which are used to determine the origin of a product for
the purpose of trade rules
Trade Defence Measuresthe
EU wants to establish a regular dialogue with the US on anti-dumping
and anti-subsidy measures
objective is to open up more access for transatlantic trade in
services, at both federal and sub-federal level, and to ensure
that European professional qualifications can be recognised in
objective is to secure investment liberalisation at both federal
and sub-federal level and potentially, to establish investment
protection provisionsthe latter subject to consultation
with Member States
objective is to open up access to government procurement markets
at all levels of US government
Regulatory Issues and Non-Tariff
The objective is to tackle so-called
"behind the border" barriers to trade, such as
different safety or environmental standards for cars, or different
health and hygiene standards for food products (so-called SPSsanitary
The objective of regulatory cooperation
extends to trade in services, as well as trade in goods, for example
Because convergence in these areas will
take time, a further objective is that a "living agreement"
for future cooperation against defined targets and deadlines should
be put in place (see paragraphs 20 to 22 below)
Shared Global Trade Challenges
Intellectual Property Rightsthe
objective is to reconcile different US and EU approaches to specific
issues, such as protection for Geographical Indications (e.g.
parma ham, champagne)
Trade and Sustainable Developmentthe
objective is to include commitments by both parties on the labour
and environmental aspects of trade and provisions to promote adherence
to and implementation of internationally agreed labour and environmental
customs and trade facilitation, trade in energy and raw materials,
trade-related aspects of small and medium-sized enterprises, state-owned
15. A study about the potential
economic effects of an agreement was carried out by the Centre
for Economic Policy Research (CEPR) for the European Commission.
The study was published in March 2013, and suggested that the
vast majority (as much as 80 per cent) of the potential economic
gains from an EU-US deal would result from the second of the above
three elements, i.e. from reductions in non-tariff barriers on
both sides of the Atlantic.
This is mainly because average tariff levels applied between the
EU and US are already relatively low. This means that although
the volume of trade between the two blocs is so large that further
tariff cuts would add up to considerable savings overall, they
would in most (but by no means all) cases make a very small difference
to the level of protection in individual sectors. For the UK for
example, the average level of tariffs for trade with the US is
around 0.5 per cent, so the scope for further reductions in tariffs
is limited, but the Government point out that dismantling them
altogether could still save UK exporters almost £1 billion.
They also emphasise that there are still products subject to US
tariffs of over 20 per cent, for example many items of clothing
16. Non-tariff barriers can take
different forms. Some non-tariff barriers, such as import quotas,
directly restrict market access, while others, such as regulations
that require expensive reconfiguration of products (e.g. changing
voltage or adapting the exhaust system of a car) add to the cost
of exporting into that market. While some non-tariff barriers,
such as import quotas, can be removed relatively easily given
political will, othersfor example those taking the form
of domestic regulationsoften prove more difficult to address
because they serve legitimate domestic purposes. Instead, the
suggestion is that the costs they pose to prospective importers
and exporters can be mitigated or reduced through some form of
regulatory co-ordination. Lord Mandelson, a former European Commissioner
for Trade, identified three possible approaches to such co-ordination:
"mutual recognition of, broadly speaking, equivalent standards"
at the lowest level of ambition, "harmonisation of existing
brownfield standards and rules pertaining in the different jurisdictions"
at the next level, and long-term convergence of regulatory approaches
in "greenfield" areas of regulation on a third level.
17. To illustrate, mutual recognition
of broadly equivalent standards might involve the EU and US each
accepting that a car manufactured to the other jurisdiction's
safety standards is safe enough to be sold to consumers in its
own market. Harmonisation of "brownfield" standards
would mean the US and EU agreeing to revise their own existing
car safety standards to create a common approach. Cooperating
on "greenfield" regulation might mean attempting to
develop from the outset a joint approach to regulation expected
to be needed in future, for example for hybrid electric cars.
All of these approaches would facilitate trade by reducing the
regulatory hurdles faced by prospective exporters on each side
of the Atlantic, in that they would save them the trouble of complying
and/or demonstrating that they have complied with, a different
regulatory regime. Lord Mandelson went on to predict that progress
would be most likely on greenfield regulation, where there is
no legacy to unpick, and that some mutual recognition should also
be possible, but that harmonisation would be "extremely hard"
because the EU and US are both "robust, insular and self-confident"
when it comes to their existing stock of regulation.
18. The focus on non-tariff barriers
as the most promising source of economic gains from a TTIP deal
has implications when attempting to quantify those gains. The
studies commissioned from the Centre for Economic Policy Research
(CEPR) by the European Commission and the UK Government on the
potential impact of a TTIP deal on the EU and UK economies, respectively,
rest on assumptions about which non-tariff barriers can realistically
be reduced, and on estimates of what the impact of such reductions
would be on prices and costs. Those assumptions and estimates
in turn rely on information collected in a previous 2009 study
produced for the European Commission by Ecorys, an independent
19. The CEPR studies have also had
to make assumptions about the eventual content of a TTIP agreement
that has yet to be negotiated: for example, the headline figures
about potential gains for the EU economy rest on the assumption
that an "ambitious" agreement can be concluded, which
is defined as tariff barriers being reduced to zero, non-tariff
barriers in goods and services being reduced by 25 per cent and
public procurement barriers being reduced by 50 per cent. Finally,
the headline figures in the EU-wide study refer to economic gains
that would be expected to materialise fully only once an agreement
is fully implemented and the economies fully adjustestimated
to be in 2027 according to that study. With these caveats, we
reproduce the headline results from the two studies in Boxes 3
and 4 and re-examine their robustness in Chapter 2.
Reducing Transatlantic Barriers
to Trade and Investment: Headline Results
· An ambitious and comprehensive
transatlantic trade and investment agreement could bring significant
economic gains as a whole for the EU (119 billion a year)
and US (95 billion a year). This translates to an extra
545 in disposable income each year for a family of 4 in
the EU, on average, and 655 per family in the US.
· The benefits for the EU and
US would not be at the expense of the rest of the world. On the
contrary, liberalising trade between the EU and the US would have
a positive impact on worldwide trade and incomes, increasing global
income by almost 100 billion.
· Income gains are a result
of increased trade. EU exports to the US would go up by 28 per
cent, equivalent to an additional 187 billion worth of exports
of EU goods and services. Overall, total exports would increase
6 per cent in the EU and 8 % in the US.
· Reducing non-tariff barriers
will be a key part of transatlantic liberalisation. As much as
80 per cent of the total potential gains come from cutting costs
imposed by bureaucracy and regulations, as well as from liberalising
trade in services and public procurement.
· The increased level of economic
activity and productivity gains created by the agreement will
benefit the EU and US labour markets, both in terms of overall
wages and new job opportunities for high and low skilled workers.
Labour displacement will be well within normal labour market movements
and economic trends. This means a relatively small number of people
would have to change jobs and move from one sector to another
(0.2 to 0.5 per cent of the EU labour force.)
· The agreement would have
negligible effects on CO2 emissions and on the sustainable use
of natural resources.
Estimating the Economic Impact
on the UK of a TTIP Agreement: Headline Results
· A potential TTIP is estimated
to yield an increase in UK national income of between £4-10
billion annually, or up to £100 billion over a ten-year period
(which corresponds to a 0.14-0.35 per cent increase in annual
GDP levels.) This means a sustained increase in the level of GDP
over baseline levels without an agreement.
· Most of the national income
gains are attributable to lowering Non-Tariff Barriers in goods.
Aggregate exports (to all countries) are expected to increase
by 1.2-2.9 per cent, and imports by 1.0-2.5 per cent (depending
on the scenario modelled). The sector most strongly affected is
motor vehicles, where output increases by as much as 7.3 percent
(or as little as 1.7 per cent).
· While the results indicate
that the effects of a TTIP for the UK are positive, the current
overall level of barriers is lower between the UK and US as opposed
to EU and US. This reflects a greater importance for services
to the US-UK relationship than to the EU as a whole.
· The report highlights the
crucial importance of non-tariff barriers (NTBs). Most of the
gains stemming from a potential agreement for the UK are attributable
to estimated reductions in NTBs. Reducing non-tariff barriers
implies reductions in costs for producers and traders and so increasing
productivity. This leads to potential investment and worker income
gains. On the other hand, if the FTA is limited to tariffs alone,
gains for the UK would be much more limited.
A LIVING AGREEMENT
20. A further consequence of the
emphasis on non-tariff barriers to trade in TTIP negotiations
is that it has been billed as a "living agreement"meaning
not a one-off negotiation, but a work in progress, not entirely
dissimilar to the EU's Single Market programme.
Professor Baldwin suggested that, like the Single Market
programme or the European Economic Area, it would mean launching
a process of regulatory convergence.
Lord Mandelson put it to us that "most trade negotiations
and trade agreements are snapshots of a period in time. What we
would be trying to do in creating a living agreement is to convert
the snapshot into a movie".
21. The intention is that a TTIP
agreement should create an institutional underpinning for sustained
cooperation between EU and US regulators, so that regulatory barriers
to transatlantic trade can be tackled on an ongoing basis. Commissioner
De Gucht told us that he anticipated there would be "an actual
agreement, where you agree on a number of things, with respect
to tariffs, non-tariff barriers, norms, standards and regulations,
intellectual property, public procurement and so on, and then
you will have a living part, whereby you put in place structures
that make sure that, in future, you will have much more common
regulation than you presently have".
22. The timetable for concluding
the initial agreement or "snapshot" has already begun
to slip. The original aspirationat the time the negotiations
were launched in February 2013was that it might be possible
to reach an agreement within the lifetime of the present European
Commission, i.e. by the end of 2014, or as Mike Froman, now US
Trade Representative put it, "on one tank of gas".
With negotiations having only just completed their initial phase,
and with President Obama yet to secure Trade Promotion Authority
(formerly known as "fast-track" authority) from Congresswhich
he needs in order to prevent legislation implementing an eventual
agreement from being amended or filibustered during its passage
through the House and Senateit is likely that negotiators
will have to "go back to the filling station."
We return to this in Chapter 4, and in the meantime turn to our
witnesses' views on what could and should be the ultimate purpose
of the TTIP initiative.
1 White House Press Release, 17 June 2013, available
at http://www.whitehouse.gov/the-press-office/2013/06/17/remarks-president-obama-uk-prime-minister-cameron-european-commission-pr. Back
BIS, para 6; White House Fact Sheet: Transatlantic Trade and Investment
Partnership, available at http://www.ustr.gov/about-us/press-office/fact-sheets/2013/june/wh-ttip;
European Commission trade policy website, available at http://ec.europa.eu/trade/policy/countries-and-regions/countries/united-states/. Back
BIS, para 8. Back
Q 1. Back
Q 198. Back
Q 198-9. Back
BIS, paras 10 and 13. Back
United States-European Union High Level Working Group on Jobs
and Growth, Final Report, 11 February 2013, available at http://trade.ec.europa.eu/doclib/docs/2013/february/tradoc_150519.pdf. Back
European Commission MEMO/13/94, 13 February 2013, available at
For more on the process, see Chapter 4 and the European Commission,
Trade Negotiations step by step, September 2013, available
at http://trade.ec.europa.eu/doclib/docs/2012/june/tradoc_149616.pdf. Back
European Commission MEMO/13/564, 15 June 2013, available at http://europa.eu/rapid/press-release_MEMO-13-564_en.htm. Back
CEPR for European Commission, Reducing Transatlantic Barriers
to Trade and Investment: An Economic Assessment, March 2013,
available at http://trade.ec.europa.eu/doclib/docs/2013/march/tradoc_150737.pdf. Back
BIS, paras 21-22. Back
Q 26. The analogy is to construction on "greenfield"
land, where there is no need to work around existing buildings
or infrastructure, in contrast to construction on "brownfield"
land where there has already been construction in the past. Back
See section 4.4 of European Commission, Transatlantic Trade
and Investment Partnership: The Economic Analysis Explained,
September 2013, available at http://trade.ec.europa.eu/doclib
and Ecorys for European Commission, Non-Tariff Measures in
EU-US Trade and Investment - An Economic Analysis, 11 December
2009, available at http://trade.ec.europa.eu/doclib/docs/2009/december/tradoc_145613.pdf. Back
For the full study, see CEPR for European Commission, Reducing
Transatlantic Barriers to Trade and Investment: An Economic Assessment,
March 2013, available at http://trade.ec.europa.eu/doclib/docs/2013
For the full study, see CEPR for BIS, Estimating the Economic
Impact on the UK of a Transatlantic Trade and Investment Partnership
(TTIP) Agreement between the European Union and the United States,
March 2013, available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/198115/bis-13-869-economic-impact-on-uk-of-tranatlantic-trade-and-investment-partnership-between-eu-and-us.pdf. Back
See Commissioner De Gucht's speech, European Commission SPEECH/13/801,
10 October 2013, available at http://europa.eu/rapid/press-release_SPEECH-13-801_en.htm. Back
Q 199. Back
Q 24. Back
Q 110. Back
See Ambassador Froman's speech, Office of the United States Trade
Representative press release, 8 July 2013, available at http://www.ustr.gov/about-us/press-office/speeches/transcripts/2013/july/amb-froman-ttip-opening-plenary. Back
Appendix 4: Evidence taken during visit to Washington, D.C., para