House of Lords - The Transatlantic Trade and Investment Partnership

The Transatlantic Trade and Investment Partnership - European Union Committee Contents

Chapter 4: SECURING A DEAL

171. In this chapter, we turn to the process by which a prospective Transatlantic Trade and Investment Partnership would need to be approved on each side of the Atlantic, and present our witnesses' views on the timetable envisaged for that process; on how political leaders and the European Commission should engage with interested parties and the public during the negotiation and ratification process; and on the political impetus likely to be required to keep the initiative on track.

Concluding a Trade Agreement in the EU

172. When negotiations are technically concluded, finalised texts of the proposed agreement are sent for so-called "legal scrubbing" by lawyers. The Chief Negotiators on both sides "initial" the negotiated text of the proposed agreement when that process is complete. The Council of Ministers and the European Parliament are then provided with the initialled text, and the agreement is sent for translation into all the official languages of the European Union. Legal scrubbing and translation can take months or even years. Once finalised, the European Commission presents a draft Council Decision on signing of the agreement to the Council of Ministers, which authorises signature. After signature by both sides, the European Parliament is asked to agree to the conclusion (that is, ratification) of the agreement. The European Parliament may not amend the agreement, it can only accept or reject it under the so-called "consent" procedure, which includes a vote in the Committee for International Trade, and then a vote in the plenary. Thereafter the Council authorises conclusion of the agreement.

173. Where a trade agreement contains provisions that fall under Member State (rather than EU) competence, individual Member States also have to sign and ratify the agreement according to their national ratification procedures. It is anticipated that this is likely to be the case for the TTIP.

Concluding a Trade Agreement in the US

174. Since 1974, the US Congress has enacted Trade Promotion Authority (previously known as fast-track authority) legislation that gives the President guidance on trade policy priorities and negotiating objectives; establishes requirements for the Administration to notify and consult with Congress and other parties during the negotiation of trade agreements; and defines the terms, conditions and procedures under which the Administration may enter into trade agreements, including the procedures by which Congress will consider bills to implement such agreements. Critically, Trade Promotion Authority (TPA) traditionally includes provisions whereby Congress agrees to consider legislation to implement trade agreements under a procedure that includes mandatory deadlines, no amendment, and limited debate.

175. The US President was granted this authority almost continuously from 1974 to 1994, but it then lapsed. It was restored in 2002 by the Trade Act of 2002, but lapsed again for new agreements (as opposed to those already under negotiation) in 2007.

176. The current US administration has yet to secure Trade Promotion Authority and this creates a critical difference with the EU, which in effect awards permanent "fast-track" authority to the European Commission.[246] Securing TPA is therefore expected to be the first hurdle for the US administration on the path to concluding TTIP.

WITNESSES' VIEWS

177. Claude Barfield of the American Enterprise Institute suggested to us that the "pattern" of TPA is that support in the House of Representatives is key. Even a Democratic President could count on support from two-thirds or even three-quarters of House Republicans, but beginning with NAFTA, a Democratic President could not count on getting a majority of House Democrats to support TPA. The President would therefore have to persuade enough Democrats to go along with the Republicans to make sure that it carried.[247] Republican Congressman Fred Upton, Chairman of the Energy and Commerce Committee in the House of Representatives, also judged that the President had "a real issue in his own party", and suggested that the President would need to win support from around 50 House Democrats to offset the 30 or 40 House Republicans who would not support TPA.[248]

178. Democrat Senator Debbie Stabenow, Chairman of the Senate Agriculture Committee, confirmed that the question of TPA was controversial, and that there was a split among Democrats over whether trade agreements should be seen one by one, rather than Congress granting overall authority. She nonetheless suggested that the agreement with the EU was probably "the one that people are most comfortable with."[249]

179. Kent Hughes of the Woodrow Wilson Center told us that, in his view, the bottom line was that the President could get TPA, but it would depend on "what he is willing to offer in response", for example Trade Adjustment Assistance.[250] He also warned that the President had other priorities on which he would need to spend political capital, such as immigration reform and ongoing problems with the Affordable Healthcare Act.[251]

180. Congressman Upton suggested that in the November 2014 congressional mid-term elections, the Senate might well flip (passing from Democrat to Republican control) and that primaries would start again as early as March 2015, meaning there would be much-shortened legislative time. He warned that it was not clear whether TPA could be passed in a lame-duck session (before a Presidential election) or not, and that TPA was "a pretty heavy lift" which would not happen without "real leadership".[252] Republican Senator Orrin Hatch, ranking member of the Senate Finance Committee and one of the sponsors of a TPA bill introduced in January 2014, emphasised that the Administration needed to ask the Committee to "get it [TPA] done", but that so far the President had not really weighed in.[253]

181. Gary Hufbauer of the Peterson Institute for International Economics and Claude Barfield of the American Enterprise Institute suggested that, because negotiations on a Trans-Pacific Partnership (TPP) were more advanced, the battles in Congress would be fought over TPA and TPP. Gary Hufbauer predicted that the TPP would "take all the heat", and that so far as TPA went through, if it went through, TTIP would get "a free ride".[254]

182. Senator Hatch emphasised that without TPA, the EU would not take the US seriously in TTIP negotiations.[255] This point was corroborated in our private discussions, where the point was also made that the President was biding his time for reasons of domestic politics, including Senate Majority Leader Harry Reid's warning in January "not to push this right now", but that there was no doubt that he could deliver TPA once he decided to go ahead. [256]

Timetable

183. We canvassed our witnesses' views on what might be a feasible timetable for reaching political agreement on the TTIP. Lord Mandelson told us that he would hesitate to use the word "unimaginable" in respect of the original ambition of striking a deal in two years, but that it would be "pushing it".[257] The UK Government accepted that "the ambition of having it completed by the end of next year [2014] is probably exactly that: ambitious." Lord Green of Hurstpierpoint, then UK Minister for Trade and Investment, nonetheless suggested that "if this turned out to be a deal that was largely identified by some time in the spring or summer of 2015, I do not think that would be in any way a failure; on the contrary, it would be a remarkable achievement."[258]

184. Kent Hughes of the Woodrow Wilson Center suggested that 2015 was the limit of what might be realistic in the US context, because even then one would be in the middle of a Presidential election, and in 2016 [a Presidential election year] that would only intensify.[259] Gary Hufbauer of the Peterson Institute suggested that although the agreement might be set up under the Obama Administration, ratification would be an issue for the next US administration, because President Obama's ability to push things through was in his view a "rapidly wasting asset."[260] Claude Barfield of the American Enterprise Institute thought it would take even longer, suggesting that the timeline for concluding TTIP would be "sometime after 2017 and before 2020".[261]

185. Lord Brittan warned us that there were capacity constraints on the US side, as the Office of the US Trade Representative was "curiously small."[262] Professor Baldwin predicted that the US would be interested in TPP first, which would take at least until the end of 2015, and that until they nailed that down, we would not see the energy in TTIP. He consequently did not anticipate that it would be done by the end of this year [2014] and probably not even by the end of next year [2015]. "On the other hand, who cares?", he suggested, arguing that "people are discussing the hard issues and making progress, and a lot of this stuff can be done without signing a free trade agreement."[263]

186. Other witnesses drew our attention to the timetable on the EU side. Dr Daniel Hamilton suggested that the timetable would be "problematic" on the European side, because there would not be any clarity until November or December 2014 on the new political configuration in the European Commission and the European Parliament. The UK Government acknowledged that a strong nationalistic vote in the European Parliament elections "would be challenging" but noted that while some parties might be nationalistic in every sense of the word, others might be anti-EU but pro-free trade.[264]

Conclusions and Recommendations

187. Without Trade Promotion Authority (TPA), the United States cannot make serious offers as part of the TTIP negotiations, lest they should put off the very people whose support they need to secure TPA. Although important technical progress can still be made, we anticipate that there will come a point when negotiations enter a holding pattern, and contentious issues are deferred until the US administration has secured TPA. The timetable for the latter is likely to be driven by the progress of Trans-Pacific Partnership negotiations. The TTIP initiative is therefore in danger of drifting.

188. The political context in the US with mid-term elections and in the EU with elections to the European Parliament and the appointment of a new Commission can also be expected to limit progress on politically difficult issues until late in 2014, or early 2015. In 2015, we anticipate that there will be a relatively narrow window of opportunity to make progress on the issues that require political capital to be spent before the US Presidential election cycle takes over ahead of 2016. Due to the hold-up over TPA, it is not yet clear that the EU and US will be in a position to seize that opportunity.

Living Agreement

189. We also canvassed our witnesses' views on what a "living agreement" might mean in practice. Commissioner De Gucht told us in November 2013 that there was "a basic understanding that you have a regulatory council made up of the most important people on both sides of the Atlantic, with respect to regulations. That would be a kind of steering committee and would also have a forward-looking view on regulation." He suggested that it was "more or less agreed" that this would be provided for, but that he would prefer to go further and "give that council the possibility that, if something has to be regulated, they could assign it to a common body, a common group of regulators, so that from the start we have common regulations. That is the best way to avoid disparities: to agree them together."[265]

190. General Electric approved of the idea of creating "a Council of some sort" including regulators from both sides of the Atlantic, but suggested it should also include "central, high authorities, e.g. the Vice-President of the US and a suitable EU counterpart" who would be charged with overseeing cooperation into the future and providing sustained political accountability. They predicted that it would only be possible to tackle a limited number of sectors as part of the initial negotiations and that it would therefore be important to set up a horizontal mechanism of this nature to allow regulators to engage with each other as new proposals emerged.[266]

191. Corporate Europe Observatory raised with us two concerns about the institutions and processes that might be set up to provide for a "living" agreement. First, that the European Commission was in their view proposing to set up a "very complicated" system for future legislation that would open up the policy process much earlier than is currently the case to US interests—including US stakeholders as well as the US administration—who would be able to input at a very early stage and "long before any Parliament in Europe". They suggested that this would have the practical effect of shifting policy-making into "the pre-democratic sphere, the pre-public sphere, to bureaucracies", and to that extent disempower Parliaments. Second, they were concerned that provisions making it compulsory to provide information to stakeholders at an early stage would provide "very early opportunities for industry to water down, to delay or even to kill legislation—providing strong consumer protection, for example—that they dislike."[267]

192. The UK Government contested this, noting that there were already sectors—such as telecoms and the internet—that were in large part regulated at a global level, and that this did not appear to pose such a big challenge. They also emphasised that the Americans "cannot have a seat at the EU table", nor was that envisaged: instead, the aim might be to encourage regulators to consider the transatlantic impact of future regulation in their impact assessments—an obligation that would be reciprocal.[268]

193. We support the establishment of a structured arrangement for future dialogue between EU and US regulators, and consider it a critical part of the long-term legacy of a TTIP agreement. We see no inherent reason why such an arrangement need be complex or why taking account of the transatlantic impact of regulation—as one factor among many—should disempower democratic institutions.

Transparency

194. A number of witnesses drew our attention to their concerns that the TTIP negotiations were insufficiently transparent. Maria Eleni Koppa MEP told us that "the fact that we are totally in the dark about what happens and about the details of the negotiations is not helpful, at least for those of us who want to be supportive."[269] Corporate Europe Observatory expressed their concern that the agreement was being negotiated "in secrecy and under undue influence from corporate lobby groups".[270] On the other side of the Atlantic, the AFL-CIO suggested that transparency around TTIP negotiations was "very low", and that the idea that it could not be discussed publicly was "a real red flag". In their view, secrecy was a holdover from the days when agreements were about tariffs, and "you didn't want the potato farmers to know that their protectionist tariffs were being cut until you could show them that the tariffs on automobiles were going to be cut too. But now that we're talking about food safety policy and financial services regulation and all of these additional things, those are the kinds of things that, in a democracy, need to be discussed in the open, and not behind closed doors." They questioned what was being done that was "so horrible that it needs to remain in secret until you're ready to pull it all out?"[271]

195. Commissioner De Gucht told us that his response to those calling for the European Commission's negotiating mandate to be made public was that he could not supply the mandate because it was not his mandate: the Council of Ministers had refused to render it public.[272] The European Commission's Chief Negotiator for the TTIP added that "you cannot negotiate without maintaining confidence between the negotiators, which means that normally the negotiating text and negotiating proposals are in confidence. They are not public documents." They had nonetheless attempted to respond to the level of public interest in the negotiation by making as many documents public as possible, and publishing initial position papers. Mr Garcia-Bercero went on to point out that every document that the European Commission had given the United States in the context of the negotiation was a document that had first been consulted with the member states. The member states therefore had "all of those documents", as did selected members of the European Parliament's INTA committee, the committee responsible for monitoring trade policy. He acknowledged, however, that the United States was concerned about access to offers that the US gave to the Commission, and wary of leaks.[273]

196. The UK Government noted that there had been "a bit of disagreement" between the US and the EU about transparency. They suggested that while "clearly you cannot go into a negotiation with your bottom-line position being made available for everyone to see", where there was no need for secrecy there should be none.[274]

Conclusions and Recommendations

197. The European Commission is in our view going to considerable lengths to improve transparency around TTIP negotiations. Both Commissioner De Gucht and Chief Negotiator Ignacio Garcia-Bercero have readily assisted us with our inquiry. In respect of the confidentiality of the negotiating mandate, we believe the Commissioner is right to point to the Council of Ministers: it is the Member States—whose decision it was to keep the negotiating mandate out of the public domain—who need to defend that decision, which we judge to be correct.

198. The European Commission cannot be expected to make the case for the TTIP initiative across 28 member states. In our view, EU member states are not bearing their fair share of responsibility for transparency and communication around the project. This may be exacerbated by the fact that although EU trade ministers lead on the initiative, the breadth of the negotiations means that many other national ministries are involved, and—in our experience of the UK—not necessarily seized of the importance of promoting TTIP to the public and other interested parties.

Communication

199. Our witnesses also put forward competing messages about what the public should think of the TTIP project. Corporate Europe Observatory described the TTIP as "a power grab from corporations on our societies", and highlighted their impression that the Commission was "negotiating on behalf of a certain group in society, which is export-oriented companies."[275] The AFL-CIO also suggested that the strategic purpose of the TTIP was "to diminish the power of democratic institutions vis-a-vis the power of large corporations."[276]

200. The companies we heard from rejected this analysis. General Electric, for example, insisted that they had "zero expectation that regulators on either side are somehow going to capitulate their missions and their authority to serve up all kinds of pro-business weakening of regulation". They suggested that the business community needed to be clear on their objectives and be vigilant in pushing back on those who might try to mischaracterise what was being negotiated.[277] The Dow Chemical Company told us that they too were trying to put the message out that the negotiations were "not about getting rid of anybody's regulatory system. We are a heavily regulated industry, we expect to be."[278]

201. The UK Government emphasised the need to "get the message out that TTIP is not about a big corporate deal. Just because big corporates want it, that does not mean that it is only for big corporates or is wrong."[279] They acknowledged that there was a need to make the TTIP initiative "less dry and more real", which would include finding "real examples of real things" that might matter to people.[280]

202. Dr Hamilton suggested that free-trade member states in the EU had thus far not done a very good job of engaging publicly on the agreement, and at the moment were losing the public debate. In his view, governments on both sides of the Atlantic had not yet been able to boil the case down to the types of arguments to which people could relate.[281] He went on to suggest a number of ways in which the TTIP initiative could be better explained.

203. In Dr Hamilton's view, the lifeblood of the transatlantic economy was investment, not trade. US commerce with Asia was trade-driven, while US commerce across the Atlantic was investment-driven—this simple distinction made all the difference. He suggested that leaders should be talking about spurring on investment flows, which would mean more investment, translating into real jobs. "When you do trade, you send stuff across the ocean. Investment is going to be in your community."[282]

204. He also suggested there was a need to explain that "what the US and EU are trying to do with the TTIP agreement is to keep standards high, and set a benchmark for global standards, and that if they do not do it then the result will be to end up with Chinese standards, and that is the simple choice."[283] Democrat Senator Debbie Stabenow also framed the agreement in those terms, suggesting that the EU and US shared the problem of competition from other lower-wage countries and so the TTIP was about how to raise standards in other countries instead of lowering their own.[284]

205. Dr Hamilton warned that talking about transatlantic barriers had led some to think that the agreement was about and for big companies. It would be important to counter that by pointing out that part of the reason why small companies did not engage in trade is because it involved too much paperwork, and was too complicated. "If those barriers could be cleared away with two-thirds of the world's richest economies, then the artisan cheese maker in Wisconsin would have a market in Europe that he might not want to engage in right now because it's too complicated."[285]

206. In the end, when it came down to the US Senate or members of Congress, Dr Hamilton predicted they would first ask what it would mean for their constituents. Studies about what the TTIP would mean for states would therefore be quite important. Senator Cochran made a similar point, noting that although trade and trade policy was not an issue raised with him by his constituents, they did recognise that agriculture, especially cotton and soya beans that are grown in Mississippi, provide export revenues to the state and that the European Union was the biggest market for those products.[286]

207. Dr Hamilton predicted there would also be a lot of other questions unrelated to the agreement raised, about the US-EU geopolitical relationship in general, meaning that the geopolitical argument would have to be in place as well as the economic.[287]

Conclusions and Recommendations

208. We recommend that the UK Government should formulate a cross-government communications strategy in respect of the TTIP, involving ministers with sectoral responsibilities and building on cross-party support for the initiative. It should not be left to each Department to decide whether and how to engage with interested parties and the public. Although the Department for Business, Innovation and Skills is best placed to co-ordinate this task, it should be a shared responsibility across Departments.

209. Insofar as a public debate on TTIP exists, EU member states are losing it. In part this is because they are engaging in it fitfully and invariably on the back foot. The UK business community—with notable exceptions, such as the motor industry—has not been vocal in support thus far.

210. Proponents have yet to articulate the purpose or possible gains from TTIP in a compelling way, or to offer convincing responses to legitimate concerns. In too many cases, we have had to coax out of our witnesses what TTIP might deliver for the ordinary citizen. There is indeed a risk that transatlantic trade is perceived as "sending stuff across the ocean", and therefore not relevant to an ordinary household or small business.

211. We recommend that the UK Government and the European Commission should review their account of what TTIP is about. We see scope to put more emphasis on investment and the jobs it may lead to—particularly in the UK which is a major recipient of US Foreign Direct Investment. We also see scope to emphasise the likelihood that small and medium-sized businesses stand to benefit disproportionately, not only from specific provisions under negotiation, such as protection for Geographical Indications, but also from any reduction in red tape associated with transatlantic trade, given that the vast majority of gains from TTIP are expected to result from reductions in non-tariff barriers. That case ought in our view to be made directly to small and medium-sized businesses who might otherwise consider that the initiative has no direct relevance to them.

212. We recommend also that the Government should make clear the very considerable costs to the UK and the EU of potential failure in the TTIP negotiations (drawing on evidence set out in paragraphs 71 and 72 of our report).

213. We recommend that, as more detail on potential provisions in each chapter becomes available, the UK Government should commission work on the potential impact of a TTIP agreement on specific regions and nations of the UK—in some respects like the 50 States study prepared for US audiences—in order to identify tangible benefits and risks for specific geographical constituencies. We believe that this would aid transparency and help to identify not only where gains may lie but also which concerns are warranted and need addressing.

Political Engagement

214. In November 2013, Commissioner De Gucht told us that, in his view, the biggest hurdle for the TTIP project was political resolve: "What is the biggest hurdle? You will need a lot of political resolve to do it. I believe even more in the United States than in Europe."[288]

215. Our witnesses highlighted four areas in particular that would require political resolve. First, leaders would need to take on special interests. The EU's Chief Negotiator for the TTIP, Ignacio Garcia-Bercero, emphasised that "it is never going to be possible to conclude this negotiation unless it is done at a rather high level of ambition. It is part of the political reality of the negotiations."[289] Lord Brittan suggested that there should be a focus on identifying those things that would be most attractive for each side, in order to reach an initial tentative agreement building on those things, and then use those attractions to assist in overcoming the obstacles.[290] Professor Baldwin warned us that the precedents were not necessarily encouraging: "with the Swiss-US free trade agreement we found that everybody was interested, but it was killed by peanuts, chocolate and beef." He went on to suggest that there might be a huge business interest, but there were also "these very hard special-interest nuts. To overcome them we need Angela Merkel to say, 'This is a systems competition between the Atlantic economies and China', and then they will overcome the peanut guys."[291]

216. Political resolve would also be required to engage regulators on both sides, but particularly in the US—the stumbling block identified by Lord Brittan. Mr Garcia-Bercero warned us that "the regulators on the US side have a strong tradition of independence and strong constituencies in the Congress. That means that, although most of them—not all—are part of the Executive, it is still a very tricky issue to get them fully engaged in the exercise."[292] Gary Hufbauer of the Peterson Institute suggested that, if the regulatory agenda that the EU has espoused were to be serious, it "would require trimming the authority of the US independent regulatory agencies by some oversight as they write their regulations going forward. This would produce push back from the constituencies and the regulators themselves."[293] Professor Evenett told us that "changing the status quo would require very senior political leaders to signal that they would be prepared to change the law and in some cases to change personnel at these key regulators if they were not to co-operate." He judged that that would be "quite hard to pull off" and predicted that in spite of "much talk of a need for very senior political commitment to various aspects of this negotiation … when it comes down to the regulatory side I think you will see that it is missing."[294] He suggested that Congress would be "the key player" as the congressional committees that oversee the regulators would "determine whether or not cooperation happens."[295]

217. Our witnesses also predicted that political heavy-lifting would be required in order to bring the US states on board. Gary Hufbauer pointed out that, in the US, most services are regulated at the state level, as is procurement, "so there would be a lot of pushback from the states about being subjected to or included in a TTIP agreement." He noted that the USTR formula thus far had been "come along if you wish", and in recent trade agreements, "none of the states have wished, so they would have to be forced or some very strong incentives would have to be provided."[296]

218. Lord Mandelson warned that political resolve would also be required on this side of the Atlantic to corral EU member states: "in the case of the EU you are … negotiating with yourselves in a sense almost as much as you are negotiating with the people opposite you". He predicted that there would be a need to make sure that, at member state government and at head of government level, differences or conflicts were reconciled, creating a clear, united position for the EU to take.[297] Professor Evenett predicted that German support in particular would be critical, "because what is different now from in the past is that the Germans are very much behind this initiative." He warned that "if they lose interest in this, I do not think the UK and Sweden can carry it."[298]

219. Lord Mandelson judged that the UK Government had "done a great job … in getting TTIP on the agenda and agreed." But he warned that "it did not do it by itself; it did it with Berlin and other supporters. London now has to realise that it cannot deliver TTIP on its own." He predicted that "a considerable galvanising and sustaining of effort among the member states as a whole" would be needed, for which the UK would need allies. Lord Brittan emphasised that the European Parliament should not be overlooked by regarding it as "a body that you have to deal with when it is all over", but should instead be engaged with at an early stage, treating MEPs as partners in the process.[299]

220. Lord Mandelson also emphasised the UK's role in engaging with the US, suggesting that the US administration needed to feel "that they have people on the European side who understand their point of view."[300] The UK Government recognised this, noting that "we have a greater chance as a bilateral influence point than any of the other member states."[301]

221. Ultimately, however, most of our witnesses concluded that the fate of the TTIP lay in the hands of the White House. As Lord Mandelson put it, "If the White House is really not joined in this thing, if it is really not using up its political capital and really putting its shoulder to the wheel in this negotiation, there is absolutely no chance of it going anywhere beyond the day after tomorrow."[302]

Conclusions and Recommendations

222. The UK Government have a particular role to play in spurring on other leaders and decision-makers, on both sides of the Atlantic, if momentum behind the TTIP initiative is to be sustained. We judge that the Government are according priority to this in their work in the United States, but that there is scope for them to do more in Brussels and in national capitals to develop and sustain coalitions with other EU member states, in particular Germany and France. This will be vital if the Government and their allies are to take charge of the public debate in the EU and help ensure that a new Commission is in a position to seize the narrow window of opportunity available to clinch a political agreement in the first half of 2015.

246 Q 105. Back

247 Appendix 4: Evidence taken during visit to Washington, D.C., para 92. Back

248 Ibid., para 68. Back

249 Ibid., para 114. Back

250 The Trade Adjustment Assistance Program is a US federal programme that provides benefits and services to people deemed to have lost their jobs as a result of foreign trade. Back

251 Appendix 4: Evidence taken during visit to Washington, D.C., paras 84-85. Back

252 Ibid., para 69. Back

253 Ibid., para 112. Back

254 Ibid., paras 89 and 92. Back

255 Ibid., para 112. Back

256 See, for example, 'Obama and G.O.P. Facing Opposition to Trade Pacts', New York Times, 30 January 2014, available at http://www.nytimes.com/2014/01/31/business/reid-pushes-back-on-fast-track-trade-authority.html. Back

257 Q 24. Back