APPENDIX 4: EVIDENCE TAKEN
DURING VISIT TO WASHINGTON, D.C.
Monday 27 January-Thursday 30 January
Five members of the Committee (accompanied
by the Specialist Adviser and Clerk) visited Washington, D.C.
The aims of the visit were to take evidence from relevant witnesses
in the United States, and to explore US objectives and concerns
in regard to a prospective TTIP agreement.
Members visiting: Lord Tugendhat (Chairman),
Baroness Bonham-Carter, Lord Foulkes of Cumnock, Lord Jopling,
Lord Radice. In attendance: Miss Julia Labeta (Clerk) and Dr Dennis
Novy (Specialist Adviser).
Day One: Tuesday 28 January
British Embassy
The Committee met with HE Sir Peter
Westmacott, UK Ambassador to the United States, for a private
briefing.
AFL-CIO
The Committee took evidence from Celeste
Drake, Trade Policy Specialist, Brad Markell, Executive Director,
and Damon Silvers, Director of Policy at the American Federation
of Labor and Congress of Industrial Organization (AFL-CIO).
1. Ms Drake explained that the AFL-CIO
was concerned that the TTIP should not become a tool to drag standards—such
as labour and environmental standards—down. For the EU,
this would involve levelling down to US standards. In the hands
of "aggressive and litigious" US companies, Investor-State
Dispute Settlement (ISDS) provisions could serve as a mechanism
for bringing standards down.
2. The AFL-CIO was also keen that
the ability to use public procurement to promote economic and
social policy should be maintained. Ms Drake emphasised that they
did not wish to see "Buy America" provisions obliterated
by a TTIP agreement.
3. Asked about whether there were
any useful precedents on ISDS in CETA, the EU-Canada free trade
agreement, Ms Drake said that including ISDS provisions was not
a good precedent, and that the AFL-CIO's preference is not to
have ISDS provisions included at all, because they view them as
undermining, rather than advancing, the rule of law.
4. Asked about the reaction of the
US Administration to the AFL-CIO's views on ISDS, Ms Drake explained
that opinion in Congress varied, with approximately one-third
of members sympathetic to their concerns, one-third strongly in
favour of ISDS provisions, and one-third in the "mushy middle".
The Administration had, however, told them that it regards ISDS
as a good system and will continue to include it in US Free Trade
Agreements (FTAs).
5. Mr Markell added that in
Congress, turnover was so great that many members were not aware
of the issues. He suggested that the inclusion of ISDS provisions
in TTIP would reflect a presumption that EU legal systems are
not up to the task of adjudicating commercial disputes.
6. Asked about whether labour standards
might not be pulled up rather than dragged down as the result
of regulatory dialogue between the EU and US in the context of
TTIP negotiations, Ms Drake suggested that in practice, trade
agreements signed by the US tended to set a floor for labour standards,
and that mechanisms to enforce those standards were generally
weak at best.
7. Responding to a suggestion that
things might work out differently when dealing with a developed
economy like the EU, Ms Drake was pessimistic, arguing that the
way US corporations do business is to drive down standards. They
might start in Bulgaria or Romania, but ultimately UK workers
would also be affected. Mr Markell suggested that the phenomenon
might also apply in reverse, as had been seen with German car
companies coming to low-wage America—such as Mercedes Benz
in Alabama—and pushing unions out.
8. Asked about whether TTIP might
bring any benefits to consumers in terms of lower prices, Ms Drake
dismissed such effects as "marginal", noting that European
goods were already widely available, and that in their view, any
prospective benefits on that front were more than outweighed by
the risk of dragging down standards, for example food safety standards.
Big food conglomerates did not want to label growth hormones or
GM ingredients, and would therefore try to sideline the EU's precautionary
principle and "go after" labelling rules. "Sound
science" was no more than "code words" to get rid
of safeguards, leaving no room for future improvement in US standards.
9. Responding to the suggestion
that the negotiations on TTIP might be used to raise US standards
in this area, Ms Drake argued that although the AFL-CIO would
welcome such a development, they would not wish to foreclose future
opportunities to change US regulations. If, for example, there
were to be future challenge under the terms of a TTIP agreement,
and it were to be found that labelling GMO ingredients in a breakfast
cereal was more restrictive than necessary under the terms of
that agreement, then that would foreclose that type of regulation
in Europe, but also in the US. It is not that by signing the agreement,
US or EU standards would automatically change, but it's the policy
space box that they would not want to lose, so that the US could
get better than it is now.
10. Mr Markell described the
chapters of the TTIP as a "corporate wishlist" and suggested
that, as someone from Detroit, his view was that the downfall
of the auto industry had been trade-linked. The automobile industry
and now increasingly the aerospace industry had moved to low-wage
Mexico as a result of NAFTA. Developed nations could not compete
with markets where there was still labour repression. Recognising
that the TTIP would be concluded between two developed economies,
Mr Markell suggested that the equation he had described would
be very much flipped, with the EU on the receiving end.
11. He went on to suggest that NAFTA
is what put bad trade deals on the political map with workers
in the United States and that it has never really gone away. Ms
Drake noted that, "in the comparison to NAFTA, the US would
be Europe's Mexico"—particularly the southern states
that are lower-wage, that are "right-to-work", that
would be less tolerant of workers exercising their labour rights.
12. Responding to a question about
transparency, Mr Markell took the view that transparency
around TTIP negotiations has been very low. "There are about
600 people who can see what's being written, and nobody else can.
What is it you're doing that is so horrible that it needs to remain
in secret until you're ready to pull it all out?" The idea
that none of this can be discussed publicly was "a real red
flag".
13. Ms Drake suggested that secrecy
is 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."
14. Responding to the suggestion
that it would be infinitely more difficult to give and take in
public, and the answer might thus be to put together a package
which people can then vote against if they want, Ms Drake countered
that in the AFL-CIO's experience, Congress has never rejected
a trade deal that was presented under fast-track. All legislation
is difficult to do in public. She went on to suggest that the
WTO does release draft texts, before it gets to final texts, and
that is one better and more legitimate way to do it.
15. Mr Silvers noted that his
colleague Celeste is among the 600 people who have access to the
texts, and that he personally had talked to Mr Froman "about
as many times as most people in the policy-making process in the
United States". He suggested that it was not the case that
the American labour movement is radically isolated from the policy-making
process, but rather that, "you can be talked to without genuinely
participating." He noted that having formal standing in the
process did not mean being part of policy formulation, and that
the only way to be included in the policy formulation process
was to have a process that was sufficiently broadly open that
you could marshal allies in the conversation.
16. Mr Silvers suggested that
if one put the question of what the goal of a trade agreement
between the world's two largest economies should be to a rather
open process, there would clearly be a consensus in both societies
that the goal of such an agreement would be to try and further
develop the things that make EU and US societies particularly
successful—the social values of the EU, the extent to which
those values are shared with the United States, the values of
openness, of democracy. "Every indication that we have of
the strategic purpose of this agreement is that it is intended
to go in the opposite direction, and that it has been set up to
do that by people with a very specific agenda, and that is to
diminish the power of democratic institutions vis a vis the power
of large corporations. And the only way that kind of agenda gets
imposed on two large democratic polities is by having a closed
process." He went to add that this was nowhere more concerning
to the AFL-CIO than in the area of financial regulation.
17. The AFL-CIO strongly supports
a robust common floor between the US and EU on financial regulation,
and see it as critical to achieving the purpose of the Dodd-Frank
Act. However, they have no reason to believe that the TTIP would
produce a financial regulatory framework that they would support.
Indeed they feel certain, based on their understanding of the
politics, that it would be a weakening, a least-common-denominator
agenda. They therefore support Secretary (Jack) Lew's position
that financial regulation should not be in the TTIP.
18. Mr Silver noted that they
had had to fight very hard to protect the regulatory framework
for derivatives that came out of Dodd-Frank against pressure from
European financial services institutions and from transatlantic
financial services institutions working through the EU, seeking
to weaken that regulatory framework and make it possible for US
institutions to use European platforms to avoid US derivatives
regulation. "That sort of experience colours our view of
what is possible in the TTIP framework".
19. He went on to suggest that US
business would like to dismantle European food safety regulation,
European data privacy regulation, European anti-trust rules, and
that "US financial services institutions would like to ally
with European institutions to come back at Dodd-Frank from offshore."
Mr Silvers went on to describe the TTIP negotiations as "a
coalitional effort by global corporations based in both societies
aimed at the societies themselves."
20. Ms Drake emphasised that the
AFL-CIO had not come out against the TTIP and do not think it
is a lost cause, but that it was right to go in "with our
eyes open" based on previous experience with trade agreements
and with the WTO, which in their view seems to primarily benefit
the large global corporations. Ms Drake pointed out that the US
had twice lost WTO challenges against attempts to label tuna as
dolphin-safe. What the consumer wants to know about the product
had been relegated below the right to sell the product in another
country. The AFL-CIO did recognise the potential benefits to the
consumer from lower prices, but based on what they have seen,
they expect it to be outweighed by the potential negatives.
21. Mr Silvers suggested that
the TTIP is unique in the sense that the United States is the
low-wage participant in the agreement, because US wages are lower
than in the major manufacturing economies in the EU. He set out
the view that what is problematic about TTIP is not the attempt
to address tariff barriers and long-standing tensions between
the two economies on e.g. aerospace or the automotive industry,
but what the AFL-CIO sees as the dominant regulatory component
of the negotiations and the balance of power between civil society,
the state, and the corporate sector in both societies. He suggested
that this was "a choice that has yet to be locked in"—policy
makers are still in time to change course, and this would change
the AFL-CIO's view. He added that if there were to be a more open
process and both societies were able to more genuinely pursue
what the publics in both societies would want, then this could
be something quite positive, but at the moment they [the AFL-CIO]
see another agenda.
22. Mr Silvers rejected the
suggestion that broadly speaking, the EU had higher standards
of regulation than the US, arguing that this might have been true
five years ago, but is no longer the case. In financial regulation,
for example, the US had in his view gone further in dealing with
the causes of the financial crisis than the EU has. In terms of
basic workers rights, to the extent that there are EU-wide standards,
there is no question that there is a higher standard in the EU,
but in crisis-hit countries like Greece or Spain, standards have
been slipping even if they are probably still just above those
found in southern US states.
23. Responding to a question about
procurement, Ms Drake expressed concern about privatisation and
outsourcing of public services. In the United States, there is
almost no public service that is not privatised somewhere. The
AFL-CIO view public procurement as "not a trade issue"
but about "how a domestic government chooses to spend its
very precious resources". Being able to use that money in
targeted places for target people is very important. If the rules
say that all public procurement must be open to European companies,
then the funds raised through taxes aren't necessarily going to
recirculate in the community and have that multiplier effect.
24. Responding to the suggestion
that foreign companies would still employ local workers to provide
local public services, at a lower cost to the taxpayer, Ms Drake
argued that the discretion to allow a local public service to
be administered by a foreign company should still rest with each
municipality, state or the federal government. She also added
that workers typically lose benefits when they are contracted
out from the federal government to a private company.
25. Mr Silvers made a distinction
between two different concerns. One is about whether the TTIP
will be used as an instrument to force privatisation. That is
not a suitable issue for a trade agreement to address. There the
issue is not who the contractor is, but whether it's a public
or private company. Then there's a second issue around the procurement
of manufactured goods. According to Mr Silvers, the US and
the UK are the two major industrialised economies that have most
radically de-industrialised, which is now regarded as a mistake.
If the US is to re-build its manufacturing sector, it needs to
compete with economies who are clearly—and rightly, in the
AFL-CIO's view—using their industrial policy around procurement.
"We don't want the US to be barred from playing that game
which everyone else is playing by the TTIP."
26. Responding to a question about
data protection in the wake of the Snowden revelations, Ms Drake
suggested that the issue had not captured the public's attention
in the US in the way it had in the EU. The AFL-CIO has long been
supportive of greater privacy than US law affords and what USTR
includes in trade agreements. USTR has in their view not been
responsive enough yet to real concerns and would continue to learn
by getting pressure from the European side that its status quo
approach would not work. The large US internet companies like
Google and Microsoft, who are quite influential with the US administration,
would have to learn that what has been the practice simply isn't
good enough. The AFL-CIO has not, however, dealt with the issue
directly, nor taken any position on the CIA and Snowden revelations.
US Chamber of Commerce
The Committee met informally for a roundtable
discussion hosted by the US Chamber of Commerce, and chaired by
Marjorie Chorlins, the Chamber's Vice-President for European Affairs.
Also in attendance were her colleague Philip Finiello and representatives
of the following member companies: Lisa Schroeter of the Dow Chemical
Company, Stephen Biegun of the Ford Motor Company, Kevin Mundt
of Chrysler, David Short of Fedex, and Michael Fitzpatrick of
General Electric.
27. Ms Chorlins began by welcoming
the group and explaining how the Chamber was helping to generate
political support for the Transatlantic Trade and Investment Partnership
(TTIP). The Chamber favours a comprehensive and ambitious TTIP
agreement. In addition to its direct thought leadership, the
Chamber serves as secretariat for a broad business coalition known
as the Business Coalition for Transatlantic Trade (BCTT). The
BCTT includes hundreds of companies and associations. There are
11 working groups that have developed position papers on agriculture,
digital trade, mobility, public procurement, goods, services,
trade facilitation, regulatory cooperation, competition, investment
and intellectual property. These papers are publicly available
and have been submitted to both EU and US interlocutors.
28. Mr Biegun (Ford) stated
that his company seeks to narrow regulatory differences that exist
between US and European markets, in addition to reduction/elimination
of tariffs that hinder transatlantic trade. But tariff elimination
alone would not be enough to facilitate the increase in trade
that they would like to see. They are also looking for sustained,
high-level political support to achieve this outcome. He pointed
out that it was not the first time that the US and EU had begun
this conversation, but "it withered on the vine last time"
because it lost political attention on both sides of the Atlantic.
He therefore suggested that it was critical to sustain a high
degree of top-level attention this time around.
29. He added that his company TTIP
to enhance trade and improve the investment climate for future
investments in the US and Europe, which are two of the largest
markets in Ford's worldwide operations. Without the scale that
can be achieved by creating a more open and common regulatory
scheme between the markets, the European and US markets might
begin to lose favour compared with the scale that is achievable
in countries like China. Global vehicle safety standards are no
longer set by the US alone but rather by markets where sales are
greatest. Last year [2013] Chinese consumers bought 22m new automobiles,
compared to 13.5m new automobiles in Europe, and 16.5m new automobiles
in the US Separately the US and Europe do not have markets of
sufficient scale to compete with China, but together they do.
30. Michael Fitzpatrick of General
Electric noted that if the TTIP were to succeed in creating mechanisms
for more coherence and alignment in regulation, it would be the
most important trade agreement to date. It would provide a model
for the next generation of trade agreements that are likely to
be seen over the next 25 years as economies become more complex.
Thus TTIP is not only critical in its own right but also because
of the example it would set.
31. GE was interested in three segments
in particular: first, improvements in transparency and openness
in the way policy is made on each side of the Atlantic. Second,
better analysis and greater communication between regulators on
proposed new regulations so that solutions can be sought that
don't necessarily impinge on economic activity. This can be done
without sacrificing regulators' sovereignty or forcing a "raise
to the bottom" in regulations. Third, addressing the large
stock of regulations already on the books on both sides of the
Atlantic. Here there are efforts already underway to look at sectoral
initiatives, for example in autos, to reach back and better align
the rules already on the books. It was GE's sense that it would
only be possible to tackle a limited number of sectors as part
of the negotiations and what would therefore be really important
would be to set up a horizontal mechanism, so that as new proposals
emerge, there is a way for regulators to engage with one another.
32. There needs to be in GE's view
some mechanism established, a Council of some sort, that includes
regulators from both sides of the Atlantic, but also central,
high authorities, e.g. the Vice-President of the US and a suitable
EU counterpart, who will guide/police/manage/oversee these efforts
into the future. Some legacy institution with the highest authority
should manage the mechanisms and provide sustained political accountability.
33. David Short of Fedex explained
his company's enthusiasm for TTIP and that they had already testified
before the Senate Finance Committee on the subject. He identified
two reasons why his company was so enthusiastic: one was that
anything that promotes GDP growth was good for their business,
because it meant people were shipping more packages; and second,
anything that promotes trade is vital since it is the essence
of their business. The biggest area of focus for Fedex is trade
facilitation—making the customs processes more streamlined
and efficient. Stansted is the company's main gateway for the
UK, and from there they can ship to 95 per cent of the world within
72 hours. If customs did not do its part to clear the goods efficiently,
the value proposition offered to their customers would be negated.
What good is it to offer to ship something from the UK to country
X in 72 hours if the parcel is going to sit in customs for hours,
days or weeks? Of the 28 member states of the EU and the US, only
one was in the World Bank's top five jurisdictions for ease of
trading across borders—Denmark. He suggested other EU countries
and the US needed to catch up and should not concede the advantage
of being world leaders in trade facilitation. Tariffs serve to
re-allocate resources from one place to another. Improving trade
facilitation eliminates the waste of resources, and so the payback
is higher.
34. Responding to a question about
financial services, Marjorie Chorlins explained that the Chamber's
view was that no sector should be off the table for the purpose
of these negotiations. There had been a lot written and opined
about potential downsides of including financial services, but
from both from a market access perspective and from a regulatory
perspective, the Chamber's members believe there are only upsides
to be had. This is not about a race to the bottom in regulatory
protection and the application of prudential measures, but rather
an opportunity to ensure that regulators on both sides take the
time—as they look forward in particular—to think about
the impact of a new regulation on transatlantic capital markets.
The two economies opted for very divergent approaches to dealing
with the economic crisis of the late 2000s, and some of that has
had a negative impact on the integration of transatlantic capital
markets. So the idea is not to roll back what's been done—some
think the American business community wants to roll back Dodd-Frank,
but that's not what the Chamber is suggesting. Both the US and
Europe still have hundreds of measures being promulgated to implement
their approaches to the financial crisis. As in other sectors,
financial services regulators should utilize "best regulatory
practices," including consideration of potential transatlantic
impacts. What this is about is looking at the regulations, especially
as they're being promulgated—there is still something in
the order of over a hundred regulations still to be promulgated
from Dodd-Frank, so that those regulations as they're developed
take into account the transatlantic impact.
35. The Treasury Department had
made clear its desire to keep financial services out of the TTIP
negotiations, and instead rely on existing mechanisms both at
the multilateral level and the bilateral level to address concerns
about divergences on financial regulatory matters. Ms. Chorlins
observed, "No-one really disagrees with relying on existing
mechanisms provided that they are efficient and effective. There
are many in the financial services sector who will tell you that
the existing mechanisms, particularly at the bilateral level—the
FMRD—is not as transparent or productive as they would like
or as they think the situation calls for." We understand
where Secretary Lew is coming from, and we know that Ambassador
Froman appreciates where the private sector is coming from. For
those who think they can divine whether financial services are
in or out—"it's too soon".
36. Mr Fitzpatrick (GE) concurred
with Ms Chorlins' statement. He explained that GE Capital is the
largest non-bank financing company in the world, so they have
a large stake in these issues. They are strongly in support of
the inclusion of financial services in the negotiation. There
are bilateral and multilateral regulatory cooperation efforts
in many other domains, and yet those are not being carved out
of TTIP as is being proposed for financial services.
37. He explained that it has been
his impression over the last five or six years of working on regulatory
cooperation that one of the good qualities was that it is generally
a non-partisan issue. Generally speaking it had been viewed as
good government, as cutting away the fat and the undergrowth that
is unnecessary, and not dangerous to anyone. He was sensing in
some of these discussions—particularly on the European side
but it could easily spread to the US side—some growing rhetorical
anxiety among some interest groups and some factually inaccurate
views, especially around investment issues. He suggested it was
critical that perspectives on this agreement stay rooted in fact
and there be a clear understanding of what is being sought and
what is not being sought as part of this agreement. We in the
business community are being very careful to be clear what we're
not trying to do. Nobody is under any illusion that somehow this
is a back door to getting regulatory regimes on both sides lowered
in their stringency, that there is going to be a race to the bottom.
The business community's perspective is that there more than enough
work to be done in alignment and coherence where the regulatory
standards basically stay the same—that is the whole point,
we have equivalent outcomes in these areas—and that we can
benefit from that without playing any games. He also argued that
he 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"—that
is just not going to happen. He suggested that the business community
needed to be clear on their objectives and be vigilant to push
back on those who might try to mischaracterise what is being negotiated.
38. One of the issues on the US
side is the distinction between non-independent and independent
regulators. Almost all financial regulators are independent: the
Federal Reserve, Federal Deposit Insurance Corporation (FDIC),
Commodities Futures Trading Commission (CFTC), the Securities
and Exchange Commission (SEC)—all of these are independent
regulatory entities.
39. The Treasury Department is a
non-independent regulatory entity though may operate independently
in some regards. If the Europeans could give way on certain issues
on their side vis-à-vis transparency perhaps the US can
find ways to bring closer the operations of the independent regulatory
system.
40. Lisa Schroeter of Dow Chemical
explained that as large-scale manufacturers, a lot of other companies
had also been weighing in on this subject, as access to capital
is crucial to run their operations. Turning to issues around the
rhetoric surrounding the negotiation, she noted that the chemicals
industry had been very vocal around regulatory cooperation, and
had tried to put the message out that it is not about getting
rid of anybody's regulatory system. "We are a heavily regulated
industry, we expect to be." They were working at that time
on the US system of chemicals regulation, known as TOSCA, which
had not be been updated for about 20 years. What they had in mind
was keeping the existing systems—TOSCA on the US side, REACH
on the EU side—but making them more efficient. Since they
are meant to achieve equivalent outcomes, they would like to see
discussion on processes, datasets and the risk assessment methodology.
The more that could be done to streamline the process and make
it more transparent, the better it would be in terms of the access
people have to information. It would also have value for the
regulators themselves, in that they would view how regulatory
decisions come about. Dow and companies like it can go through
the regulatory processes on both sides of the Atlantic without
unnecessary duplicative procedures. For small businesses, many
of whom larger enterprises such as Dow rely upon, the easier it
is for them to make their applications simultaneously, the more
likely they can enjoy transatlantic growth.
41. Ms Schroeter added that the
business community has consistently stated tariff elimination
is not enough. And while that is, the benefits of full tariff
phase out on both sides of the Atlantic is not insignificant.
Dow alone spends tens of millions of dollars a year paying tariffs
on goods it is essentially trading with its own company—a
reflection of the fact that a large portion of transatlantic trade
is intra-company. The idea that some things still need to be protected
sends the wrong sign to the rest of the world. If even the US
and EU can't agree to eliminate tariffs, what incentive is there
for the rest of the world..
42. She noted that there is a strong
community that is and will always be anti-trade. Anything that
starts to sound like NAFTA—some call TTIP the 'TAFTA'—it
automatically creates a negative impression to certain elements
of the public. There is a huge opportunity to turn that rhetoric
around into a much more positive discussion of what trade really
means. "At the end of the day, most Americans are not worried
about their jobs going to Germany. They probably already work
for the Germans over here anyway."
43. Marjorie Chorlins suggested
that one of the challenges with a protracted negotiation like
TTIP is that there is a tendency for negative rhetoric to balloon,
almost immediately, at the front end of the talks. The business
community is doing what it can to explain to elected officials
why they think TTIP is important. But often these issues are only
of interest to government officials when they are truly ripe,
that is, when negotiations are on the verge of being concluded.
"This negotiation is far from being concluded, and so getting
the attention of members of Congress, is extraordinarily difficult."
The business community must communicate on a regular basis but
also pace their communications through what will be a long negotiation.
Ms Chorlins suggested that there was an imbalance at present,
where "naysayers" have the airwaves a bit more than
the business community and that was something that they would
be looking to balance out over the coming year.
44. Asked about concerns about the
offshoring of jobs, for example in the motor vehicle industry,
Steve Biegun of Ford suggested that "rarely if ever"
had Ford moved a plant to another country because wage rates were
lower—instead there would be a collection of factors that
would lead to that decision, including tariffs. For example, a
high tariff of 25 per cent in China meant that it was very likely
one would build cars in China. When looking at the cost contribution
of labour, it is only one small factor of that equation. Raw materials,
the efficiency of business, the ability to source parts and suppliers,
energy costs, etc. also played a role. In the US and Europe, that
debate was largely moot in any event, whereas in the case of US
FTAs with Latin America or the poorer parts of Asia it was a reasonable
area of debate. Between the US and Europe, there was not a situation
in the transatlantic marketplace where you had a huge advantage
on one side or the other, either in terms of regulation or from
the cost of labour. There are more important issues that will
weigh on their considerations, including and especially the degree
to which the market in which they are investing is growing. That
is the most compelling producer of jobs. Creating the efficiencies
in the market that something like TTIP presumes to do was in their
view one of the lowest-cost incentives in investment that Governments
could make.
45. Asked about US labour unions
concerns that foreign auto manufacturers coming to the United
States were building their plants in non-unionised areas, Mr Biegun
recognised that this was an issue that was sensitive in the US,
but saw it as a competitive equation between the unions and the
employees that they seek to organise. There is nothing in TTIP
that would impact that.
46. On the subject of agriculture,
Lisa Schroeter pointed out that Dow AgroSciences was one of their
largest global business units. They are not looking to force product
into a market that doesn't want it, but they are asking for the
existing regulatory process to be allowed to work. Looking at
the way the EU is meant to regulate agricultural products, the
approval system is "actually quite functional", if it
were allowed to operate. Very often applications are stopped along
the way, politics takes over, and applications no longer move.
They are looking for a "fair chance" to work through
the current system.
47. Marjorie Chorlins rebutted the
suggestion that all the US wants to do is flood Europe with GM
products. The reality is that the EU does have processes to allow
for the inclusion of GMOs, the challenge is not that they want
that process eliminated, but that they want the process to work
better.
48. Ms Schroeter added that this
is not a case of the US pushing on the EU but a common transatlantic
viewpoint: industry associations on both sides are in agreement
on this objective.
49. Responding to a question about
what a living agreement might mean in practice, Steve Biegun of
Ford noted that while agreeing with the concept, it should not
take away from the urgency of concluding the agreement. There
is a need to recognise that the eyes of the world are on the US
and EU, but so is "the hot breath of the world, breathing
down our neck". In the automobile sector, US regulators had
existed for 50 years in a world that had seen the automobile industry
relocate overseas and yet they continued to act as if the US determines
the global standards in the automobile sector. The US's Federal
Motor Vehicle Safety Standards (FMVSS) are now a minority standard
globally and are exceed by both Chinese and EU standards. If they
do not embrace a more common global standard that achieves the
exact same outcome on safety, they run the risk of forfeiting
their ability to effectively uphold standards, because "someone
else will write our standards for us". He predicted that
the industry would follow the standards that represent the largest
portion of their business. It was a question of business survival,
not patriotism. Regulators need to recognise that the world they
are operating in is significantly different from when the US dictated
those standards to the rest of the world.
50. On the subject of the US public
procurement, and the limitations of what the federal government
could impose on the states, Ms Chorlins suggested that the US
government has not yet determined how best to approach this. No-one
should expect a radical shift in the way states approach the issue
of procurement, but there may be a hint of opportunity that might
not have been there in the past: States are much more actively
competing for investment on the one hand, and they are also faced
with tighter and tighter budgets. Against that backdrop, they
may see the need to identify the most cost-effective solutions—which
in some cases might not be solely US content.
51. Ms Schroeter pointed out that
the business community had also been reaching out to state governors,
and the importance of reaching out to the states early so that
they see their vested interest in access to the broader market.
52. David Short of Fedex added that
it was very instructive to look at the recent EU-Canada agreement.
It was really giving a push and could act as a catalyst, for example
wheat farmers in Montana who supply a lot of high-value durum
wheat to Europe had found that their competitors just across the
border in Alberta, Canada who grow the same product now have duty-free
access to the European market and the Montana farmers do not.
the former Senator from Montana, Max Baucus (now US Ambassador
to China), was hearing from the farmers in Montana who were facing
losing market share to their neighbours in Alberta because they
have a trade agreement and the US doesn't. So in turn he was "putting
the fire under" US negotiators to get this done and get this
done quickly, in order to avoid the loss of market share, because
once a customer was lost, it was much harder to win them back.
53. On the subject of geographical
indications, Mr Short pointed out that during stakeholder
days as part of TTIP negotiating rounds, his observation was that
American producers—Napa wine, Kona coffee from Hawaii—wanted
to have a scheme that would product the geographical origin of
their products. So a key to that issue might be to find allies
and identify synergies.
54. Mr Finiello stated that
a separate GI system in the US or any attempt to 'claw back' generic
foods terms in the US would face stiff opposition from the US
dairy foods industry. The US currently protects GIs through its
collective mark system.
55. On the subject of whether there
is competition with TPP, Ms Chorlins suggested that if there was
a challenge, it would be in terms of resources on the US side,
the availability of negotiators. USTR is very small by comparison
to other agencies and subject matter experts must juggle to work
on both agreements. Recognizing this constraint, the Chamber has
advocated for higher budget levels for the agency.
Mr Edward Luce
The Committee held a private discussion
with Mr Edward Luce, Chief US Columnist at the Financial
Times.
Senator Thad Cochran
The Committee took evidence from Senator
Thad Cochran (Republican—Mississippi).
56. Senator Cochran explained that
in his situation, representing the state of Mississippi, the state's
economic interests had been served for many years by export relationships
in Europe and the United Kingdom. The state of Mississippi is
synonymous with the cotton belt in the United States, and agriculture
is a huge provider of jobs and income and related business activity.
A large part of the purchasing that sustains that and grows that
economy is based in Europe.
57. Asked about how much interest
there was in Congress in the TTIP negotiation, the Senator suggested
that there was "a very important amount" of interest,
and that members of Congress—certainly in the Senate—recognise
the importance of trade relationships and other cooperative relationships
the US enjoys with Europe.
58. Asked about negotiations between
the US and EU on agriculture issues as part of TTIP negotiations,
and whether trade-offs might be necessary, Senator Cochran stressed
that he was "not interested in trading off anything".
US export-import policies should be based on mutual benefit, fairness,
openness, and so on.
59. Responding to a question about
the openness of the negotiations, the Senator noted that openness
in government is very popular in the US, and particularly in Congress.
60. Asked about whether there was
majority support in Congress, or the Senate in particular, for
a TTIP agreement, Senator Cochran said that as the details were
not yet known, it was too soon to make a judgment. His aide suggested
that a large majority of the Senate did want to see the TTIP succeed,
but that as the details were not yet known, it was too soon to
say "where the votes would come down".
61. On the subject of Trade Promotion
Authority, and whether Congress was more reticent to grant it
than it had been in the past, Senator Cochran insisted that as
long as it meant supporting American products being sold in overseas
markets, members of Congress would not be bashful about supporting
whatever serves US economic interests. The agreement would, however,
have to be mutually fair and beneficial. The Senator also emphasised
that the agreement would initially be a proposal, not a deal—it
would not be a deal unless and until it is ratified.
62. Asked about genetically modified
crops and livestock, and the use of growth-promoting hormones,
the Senator said he would keep an open mind, but recognised the
issues were enormously important to the countries involved, so
that the Senate would have to be very diligent in examining the
benefits, and the dangers, if any, that an agreement might pose
to the US economy.
63. Responding to a question about
how people in the state of Mississippi would look at a deal optimistically,
looking for gains, or with suspicion, looking at risks, the Senator
judged it would be "a balance of both". The benefits
that might accrue to the state would be the number one consideration,
but if there were any negative aspects that ought to be considered
or that benefits should be balanced against, they'd want to know
about them and would feel betrayed by their representatives if
they were not told about them.
64. On the subject of public procurement,
and whether people in the state of Mississippi would be open to
provision by foreign suppliers, the Senator said he expected that
local arbiters of these issues, politically active constituents,
would prefer local, home-grown workers to be doing that work and
to own the company that employs them.
65. Asked about whether the authorities
in his state would be open to public procurement of manufactured
goods, such as cars, from foreign suppliers if they were cheaper
and better, the Senator judged that the political pressures on
local officials would be very great. He pointed out that Mississippi
is an auto-producing state—Nissan, Toyota, and other auto
suppliers all have plants in the state. Foreign auto makers are
hiring local Mississippians to make their automobiles "and
we all seem to be happy about it", the Senator observed.
66. Asked whether trade and trade
policy is ever an issue that is raised with him when he is back
in his state, the Senator responded that it is not the top concern
he hears from constituents. However, his constituents do recognise
that agriculture, especially cotton, and soya beans that are grown
in Mississippi, provide export revenues to the state and they
know that the market for those products includes Europe, and indeed
that the European Union is one of the biggest markets for those
products.
Congressman Fred Upton
The Committee took evidence from Congressman
Fred Upton (Republican—Michigan), Chairman of the House
of Representatives Committee on Energy and Commerce.
67. Congressman Upton noted that
it was still early in the process, but that all eyes were on that
night's State of the Union address. In his view, "the President
really has to say something about trade" and the issue "really
is right now on his shoulders." Congressman Upton explained
that he was close to a lot of businesspeople across the country
and that there are two main advocacy groups in that community,
the US Chambers of Commerce, and the Business Round Table (BRT).
The BRT has four issues, one of which is trade.
68. On the subject of Trade Promotion
Authority, Congressman Upton suggested that the President has
a real issue within his own party. Around 150 Democrats had just
that day signed a letter effectively asking the President not
to move TPA. It was known from the beginning that most House Republicans
were going to vote for TPA, but the Republicans have about 30
or 40 members in the House who are "Ron Paul-types"
and against any trade agreement, so to pass something, around
50 House Democrats would be needed to offset those Republicans
and get it done.
69. According to the Congressman,
NAFTA, which he supported, would never have passed under George
Bush. It only passed because Bill Clinton "was a remarkable
guy and convinced enough Dems to vote with enough Rs to get it
done". He warned that by contrast, so far, "Obama has
not been able to find a Democrat in the House". If the President
"cannot get people to be with him—and he hasn't shown
much in five years—it's not going in this Congress".
This need not mean it won't go in the next Congress—the
Republicans are for the most part pro-trade—but there is
a shortened timetable to contend with. In the November 2014 mid-term
elections, the Senate may well flip. The Republicans may well
pick up 8 or 10 more seats, and their Speaker is pro-trade, but
primaries start again as early as March 2015 (in Texas), meaning
there is much-shortened legislative time, and so it is not clear
whether TPA could happen in a lame-duck session or not. TPA "is
a pretty heavy lift", according to the Congressman. "But
without any real leadership in getting people to move, it doesn't
happen."
Day Two: Wednesday 29 January
US Department of Agriculture
The Committee took evidence from Darci
Vetter, Deputy Under Secretary for Farm and Foreign Agricultural
Services at the US Department of Agriculture.
70. Responding to a question about
the most important objectives for the US in the agriculture element
of the negotiations, Ms Vetter emphasised that the TTIP was a
huge opportunity not only for the US and EU economies but also
for other economies in the world, by sending important signals.
It was an opportunity to expand two-way trade, to take a hard
look at the way agricultural products were regulated, and to try
to find commonalities of approach, particularly by encouraging
the use of science-based decision-making. She suggested that the
agriculture element of the negotiations had been mischaracterised
as one of defence for the EU and one of offence for the United
States. There were significant opportunities for the EU and the
US, and the two sides should find ways to take advantage of these
opportunities.
71. When asked what the US's main
objectives would be, Ms Vetter said that meat and poultry access
would be very important. Additionally, the US wants more normalised
trade in areas where they have experienced real regulatory barriers,
such as in biotechnology food products, and where they have seen
real impediments not only in the form of tariffs on meat but also
impediments on the use of certain food safety practices used in
the US.
72. In terms of the most difficult
concessions for the EU to make, Ms Vetter said they had seen a
real hesitation on further opening of the meat sector—beef,
pork and poultry. There would be difficult conversations on how
each side operated their regulations. On SPS issues, there was
an opportunity to look at bilateral issues, specific products
currently blocked or inhibited because of SPS barriers, and look
for ways to solve those specific issues, but also to look more
broadly at the way each side operates their regulatory regime
and try to avoid simply creating another list of issues in the
future. The two sides have the opportunity to align food safety
standards by using international standards. "If we (the US
and the EU) do this well, we could lead the world on regulatory
approaches in a way that increases trade opportunities and assists
in the regulation of food safety and animal health in other countries
as well."
73. Responding to a question about
the extent to which the EU-Canada agreement might serve as a catalyst,
Ms Vetter said that in agriculture, the US has seen its share
in the EU market decrease while other countries' trade relationships
with the EU strengthened. The US is one of Canada's competitors
in the EU, and is therefore watching closely.
74. Asked about potential domestic
threats to concluding an agreement, Ms Vetter suggested that the
difficulty for the US would be a lack of ambition on the EU's
part, the US agricultural groups would be concerned if an agreement
were not comprehensive enough. Consistently showing solid progress
in addressing regulatory barriers and eliminating tariffs would
be necessary to win agricultural support. Other sectors of the
US economy were known to complain that when it came to agriculture,
the sector might provide 20 per cent of the economic support but
80 per cent of the political support. It would be difficult to
get an agreement through Congress without having a high-standard
agreement in agriculture. She therefore suggested that she was
not looking at people pulling her back, but rather pushing her
forward, at a pace that might be difficult for the EU.
75. On the subject of geographical
indicators (GIs), Ms Vetter explained that a TTIP agreement would
not necessarily be a US compromise on GIs. She said she did not
think that the CETA agreement offered a suitable precedent, since
the US has different views than Canada. The US is concerned with
the protection of generic names. The market circumstances for
the US and Canada are different. Canada has a highly protected,
supply-managed dairy sector. The US dairy sector is looking at
opportunities for export to the EU. The US was concerned by the
breadth of protection the EU was seeking for names that the US
considers generic. She predicted that there would be a lot of
GIs, particularly compound GIs very specific to European places,
where the US and EU would not have a disagreement, but in the
broader area of protection for names the US considers generic
and recognises as generic in their US intellectual property system,
that would difficult for the US. The US was not a huge fan of
the deal that Canada had struck with the EU so far.
76. She added that the US was willing
to engage on the basis of a system that recognises generics and
trademarks. If it were possible to engage on that level and have
a "granular" conversation, then it should be possible
to make progress. She explained, for example, that they would
consider "parmesan" to be a generic name, but would
not consider "parmiggiano reggiano" to be a generic
name. The latter was quite specific and indicated to their consumers
an association with place. In the US market, parmesan is widely
used as a generic term.
77. On the subject of Genetically
Modified Organisms, Ms Vetter explained that it was important
for the US to be able to address this issue, but she believes
there is an opportunity to make progress. She said it was encouraging
that EFSA's assessments are the same as US assessments suggesting
that products are safe both for consumption and cultivation. She
noted that the EU does have a procedure for approving new products,
starting with the EFSA evaluation, but the procedure does not
always operate on the timeline that it is supposed to. Even when
the timeline is observed, every application takes the maximum
number of days for consideration. The US needs improved predictability
and timeliness of approvals for new biotechnology products. That
would do a lot to normalise trade in those products, if there
were greater predictability in those processes, and a greater
preponderance for looking at the science. "We are not asking
that EFSA take our word for it, we think it's essential that countries
be able to carry out their review, and we understand that getting
dossiers to the EU for timely consideration is part of making
sure that commerce flows well."
78. On the subject of hormone-treated
beef, Ms Vetter suggested that the main issue is access for US
beef to the European market. She pointed out that it has been
possible so far to put in place phases on a path towards a negotiated
resolution of the hormone case that the US won against the EU
in the WTO due to a lack of scientific basis for the ban. She
expressed scepticism that a quota increase for US beef would be
sufficient in a US-EU agreement. The US is looking for results
on tariffs and quotas across all beef products, and simply expanding
that quota was not what they had in mind for a fuller negotiation
on beef.
79. On the more general issue of
tariffs, Ms Vetter reiterated the objective set out in the report
of the HLWG that the TTIP should seek to eliminate all tariffs
on goods, and that included the full suite of agricultural goods.
Looking back at US trade agreements with other countries, it could
be seen that they largely did achieve that, with all tariff lines
going to zero save for a very few exceptions. That is the level
of ambition they were seeking. She recognised the US had sensitivities
just like Europe does, where staging for tariff reductions and
tariff rate quotas might be used to help deal with those sensitivities.
Such devices should not, however, be permanent.
80. On non-tariff barriers and regulatory
collaboration, Ms Vetter suggested that the comprehensive nature
of the TTIP conversations was an opportunity to address issues
where other regulatory dialogues have been unsuccessful. In the
agriculture and food sector in particular, when looking around
the world, more and more of the impediments to trade were not
tariffs but due to the regulatory structure. "Once tariffs
go down, sometimes other barriers go up", and so they wanted
to take a more comprehensive look at regulatory coherence and
science-based regulations, also in the TPP negotiations. She expressed
hope that a committee on SPS might be able to prevent new barriers
from arising.
81. Ms Vetter suggested that both
the EU and US were disappointed that the multilateral system had
not been more effective in moving forward, and suggested that
the only way of getting back to that table would be when developing
countries felt like they had something to gain from, and could
fully participate in, that global trading system. Navigating competing
standards and layers of regulation was in her view one of the
reasons why industries in those countries were not more competitive
and could not quite figure out how to participate. To the extent
that the EU and US, as leaders in creating high standards for
food safety and animal health, could take common approaches to
new challenges, even if they do not end up with the same regulation,
then they would be creating an environment that would be easier
for third countries to take advantage of.
82. On the subject of consumer prices,
Ms Vetter suggested that expanded choice and increased competition
did tend to lower prices. She did think it would be a significant
benefit of trade, but noted that in terms of using it as an argument
for winning support in Congress, the case would be more compelling
on industrial goods, whereas in agriculture the EU's competitive
advantage was in high-end products so arguments around a lower
price for basic food basket commodities would be less relevant.
The US generally had low tariffs in most of their sectors, and
therefore saw most of those benefits already.
83. On TPP, Ms Vetter argued that
it was neither a hindrance nor a help, the negotiations were at
different stages. Nonetheless, both TPP and TTIP would send a
very important message to other countries that those countries
that were willing to make hard choices, that were willing to have
a comprehensive and difficult dialogue, were not going to wait
for everybody else to get on board. In the past, the EU and US
had wanted to wait for Doha, but they have been waiting for going
on 13 years now, and it just did not happen. Both sides had heard
criticism that they were leaving the WTO behind or were not committed,
to which the US response was that when there was an offer on the
table, they would be the first ones in line. She added that these
developments could therefore be "a bit of a wake-up call"
for those countries, and that it was the natural outcome of the
lag in Geneva.
Think-tank Roundtable
The Committee took evidence from Gary
Hufbauer (Peterson Institute for International Economics), Kent
Hughes (Woodrow Wilson Center), Dan Hamilton (John Hopkins University)
and Claude Barfield (American Enterprise Institute).
84. On the subject of TPA, Kent
Hughes drew attention to the fact that the last time there was
a battle over TPA, it was very contentious. George W. Bush had
a great deal of trouble getting it. There were three votes in
the House and very close margins. The rise of the tea party in
the Republican Party has shifted what one would have previously
expected to be an overwhelming vote in favour of Trade Promotion
Authority into something that is more of a question. The Democrats,
often reflecting a labour union point of view, are increasingly
sceptical. 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 for people who lose their
jobs because of a trade agreement.
85. He added that the President
had other priorities, notably immigration reform, and would also
have to spend some political capital on ongoing problems with
the Affordable Healthcare Act.
86. Asked about a realistic time-frame
for TTIP, Kent Hughes suggested one would want to say 2015, because
even then one would be in the middle of a Presidential election,
and 2016 even more so. Already major groups were talking about
raising money for prospective presidential candidates.
87. Dr Hamilton suggested that
the administration had waited so long on TPA that the issue of
the TPP had been conflated with the TPA debate, to the detriment
of the latter. He too thought the administration would get TPA,
but at some pain. There was a lot of noise at the moment that
Congress should have more direct influence in the negotiations.
The real battle lines would be over TPP. In terms of "one
tank of gas", Dr Hamilton suggested "they would
have to go back to the filling station". The timetable was
not as problematic on the US side as on the European side. Not
until next November/December would there be any clarity on the
European side. Also, interest groups were much more engaged in
Europe. He suggested that the free-trade member states in the
EU had not done a very good job of engaging publicly on this agreement,
and at the moment were losing the public debate. The concerns
from European interest groups appeared to be that the American
system, broadly conceived, was going to come in and steamroller
the European way of life. EU member states who are in favour of
this would have to do a much more activist job to get TTIP moving
and to understand what it is and what is not about.
88. On the subject of the NSA revelations
and data privacy, Dr Hamilton argued that no-one should doubt
that there was a political link with TTIP even if there was no
formal link, because when it came to ratification, the European
Parliament would not do so unless it was satisfied that there
was some US-EU arrangement on data privacy.
89. Gary Hufbauer suggested that
the TPP would take all the heat, and so far as TPA went through,
if it went through, TTIP would get a free ride. He identified
two political issues. For the regulatory agenda which the EU has
espoused, 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.
The second issue would be the US states. 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. The USTR formula up til now 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.
90. In terms of the timeline, Mr Hufbauer
argued that it would not happen in this Administration. It might
be set up in this Administration, in the same sense that Korea
was set up in the Bush administration, or NAFTA in the previous
Bush administration, but ratification would be an issue for the
next Administration, because President Obama's ability to push
through any thing is a rapidly wasting asset, and they would run
out of steam, although there was still much useful negotiation
that could be done.
91. He added that the State of the
Union address had been truly underwhelming on trade—at the
low end of his expectations, which had already been low. He also
suggested that there was not the pro-trade strength in the Congress
that had been there in the past.
92. Claude Barfield suggested that
the timeline for concluding TTIP would be sometime after 2017
and before 2020. Because of the timing, the battles would be fought
over TPA and TPP. He suggested that the big fight in 2002 over
TPA was anomalous in that it was a highly personal contest. The
then Chairman of the Ways and Means Committee had given up on
winning support from Democrats and decided to rely solely on Republicans
to get it through. That could be done only by not losing many
Republicans, and that was his problem. There were still some protectionist
Republicans, and so it was a battle. The pattern of TPA is that
the key is the House of Representatives. Even with a Democratic
president, you can get two-thirds or maybe three-quarters of the
House Republicans, but beginning with NAFTA, a Democratic president
is not going to get a majority of House Democrats to go along
with a free trade agreement or TPA. 150 Democrats voted against
NAFTA when Bill Clinton had backed it. The President would have
to get enough Democrats to go along with the Republicans to make
sure that it carries. The Republicans had in his view made a mistake
in demanding that the President get 50 Democratic votes—the
Speaker should have asked simply for enough Democratic votes to
get it through.
93. In regard to the Senate, he
suggested that normally there was no need to worry, but that there
are now some anti-globalisation senators in key positions, including
on the Finance Committee, who could be more trouble than one would
expect.
94. On the subject of the US states,
Gary Hufbauer suggested that a plain reading of the Constitution
indicated that the federal government has power over inter-state
commerce, if the Congress decides to exercise it. The USTR was
known to have a "waffly and different" view, which he
felt was wrong, and that if Congress to chose to exercise it and
determine that state procurement should be subject to a trade
agreement, the Supreme Court would uphold it. But as a political
matter it was a different story than as a legal matter.
95. He suggested that if TPA was
drafted in a way that for a state, it was "all or none",
that would be constructive cooperation. The TPA should also say
that companies that have most of their employment in a state that
signs up—that company will then be eligible for procurement
in Europe. But if it had most of its employment in a state that
does not sign up, then it would not be eligible. In his view this
would create an incentive for that company, which is far stronger
than the USTR, to lobby the Governor on procurement or on aligning
professional certification standards or other state competences.
The other thing he thought could be done would be for the federal
government to say that if there is a significant amount of federal
funding for procurement, that would have to be open under the
terms of the TTIP. So access to federal funding could be made
conditional in that way.
96. Kent Hughes seconded the suggestion
of finding creative ways of "using the carrot". Some
states had already introduced certain regulations—e.g. speed
limits—in return for federal transportation money, so the
federal government already had practice in using incentives to
influence the states, and this was a more likely path to success.
97. Claude Barfield suggested that
while this was a great idea substantively, it might be difficult
to shoehorn into either the TPA or TTIP. He warned that the federal
government would face opposition not only from the states but
from the separate and equally influential Buy America groups.
98. Dan Hamilton noted that if one
looked at the WTO procurement agreement, only 37 states were party
to that, and there was also a separate US-Canada agreement where
not many US states got involved even though the provinces did.
He went on to suggest that the EU-Canada agreement would maybe
have some relevance for the TTIP, because the provinces were at
the negotiating table. His assessment was that the EU goal for
government procurement was maybe the top goal, or one of them,
and it was a very sensitive issue for the US side.
99. Asked whether after Presidential
elections, it would become harder to press ahead with TTIP, Dan
Hamilton predicted that any executive branch would try to continue,
but that it would be a new composition of Congress in both the
House and the Senate that would be hard to predict. Claude Barfield
pointed out that Tea Party Republicans' voting record on previous
FTAs was higher (more supportive) than the normal Republican vote,
as in the past they had seen it as part of "getting the state
off people's backs" but that they were under some pressure
now not to be seen to give anything to President Obama.
100. Asked about how many people
talk about trade policy, Gary Hufbauer suggested that it would
be very few, 1-in-50 or 1-in-100, but the way they would talk
about it would be to associate trade with all the bad things in
American life: inequality, unemployment, environmental degradation,
etc. This atmosphere among opponents, who are few but vocal, was
very strong. It had never come up as a presidential issue, but
does come up in congressional races.
101. On the subject of governors'
support for TPA, Claude Barfield suggested that governors were
all trying to attract investment, and saw trade as about jobs,
but that it would depend on the state. Dan Hamilton suggested
that much would also depend on how it is framed. TTIP was not
a normal trade agreement, because trade barriers across the Atlantic
are not very high, but if it were framed as just another trade
agreement, then it would be in more trouble than if it were framed
as something else. In his 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. When talking to a
Governor, this would mean talking about onshore jobs, and investment
coming to the states, and that would be what they would want to
hear. Across the board, and across the United States, the main
investors in all the states, the main investors creating jobs
that were on average better paid and with better benefits, came
from Europe. The UK in particular was a huge piece of that. He
therefore suggested there was a need to explain that what the
US and EU were trying to do with the TTIP agreement was to keep
standards high, and set a benchmark for global standards, and
that if they did not do it then the result would be to end up
with Chinese standards, and that was the simple choice.
102. Dan Hamilton warned, however,
that framing the TTIP as an "anti-China strategy" would
be the easy way to win support, but that it was not what TTIP
was really about. Instead, it was about helping to define the
terms of China's integration into the world economy. The question
was on what terms China and other developing countries could be
integrated. EU and US messages to those third countries had thus
far been a divided message at best, and a competitive message
at worst. Each side had been talking to third countries separately
in an attempt to shore up their standards rather than those of
the other side, and the result had been a lowest common denominator
approach. He cited the example of lead in toys, an issue that
had arisen in both the EU and US in respect of toys coming from
China. Instead of doing what they usually do, US and EU officials
joined forces and created a trilateral consumer safety process
with the Chinese, in which their major customers got together
and indicated they were happy to keep importing the toys but subject
to certain standards. That was not about containing China, but
about the US and EU protecting a certain standard. That was in
his view what the logic of the TTIP was in terms of influencing
third parties—to influence their own debates. His critique
of it at the moment, was that leaders had not said for TTIP what
they had said for TPP, which is whether it will be part of open
architecture trade or not. TPP leaders have said that although
there are 12 countries negotiating, it is also open to all members
of APEC and even beyond. In the TTIP, the US and EU had not said
anything about that, and so the impression they could create is
that it is a closed agreement, about trade diversion rather than
trade creation, and about rich countries pulling up the drawbridge.
Although that was not the logic of what was being attempted, without
saying it—even in just a general way—the US and EU
would start to lose others. He proposed that at the EU-US summit
in March, leaders should affirm that the TTIP was part of open-architecture
trade, and would be WTO compatible. In his view they did not need
to specify modalities of what that would mean yet, but without
saying something they would lose some of the PR/public diplomacy
debate.
103. On the subject of financial
services, Gary Hufbauer suggested the real problem was Senator
Warren and her allies in the Democratic party. If financial services
were included, it would be one of the regulatory issues on which
one could guarantee strong opposition, because they would see
it "as a way of putting more money in Jamie Diamond's pocket,
and to keep the big banks strong and out of control and ripping
off consumers, etc."
104. Returning to the subject of
China, Claude Barfield suggested that TTIP did not have the same
near-term diplomacy and security overlay that TPP did. For that
reason, it would be a disaster for the US if TPP went down. Dan
Hamilton agreed, but argued that the TTIP did also have a security
and diplomacy overlay.
105. Dan Hamilton added that looking
at the components of TTIP, it would reach deeply into both domestic
societies. Aligning regulatory differences would be where the
politics and the tough trade-offs would be. This is where TTIP
would go beyond previous trade negotiations, including the TPP.
Claude Barfield warned that the Obama administration did not appear
to have prepared the business community for where it might have
to compromise, for example on IP protection, or on services.
106. On the subject of how to engage
with the public about TTIP, Dan Hamilton suggested that leaders
should be talking about spurring on investment flows, which means
more investment, translating into real jobs. "When you do
trade, you send stuff across the ocean. Investment is going to
be in your community." That would be the sort of case people
could relate to. 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 a big
part of the reason why small companies don't engage in trade is
because it was too much paperwork, and 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.
107. Returning to the lead in toys
example, he went on to suggest that if the EU and US could at
least agree on some basis, it would not set the global standard
anymore, but at least there would be an orientation point. If
the US could not do that with the system most like theirs, how
could they possibly do it with other countries. These kinds of
arguments were more likely to have traction than expert studies.
Governments had not yet been able to boil the case down to the
types of arguments people could relate to.
108. He also warned that the TAFTA
label was misleading in suggesting that the TTIP was predominantly
about trade, and would invite all sorts of arguments that could
be avoided if one made clear that it was about something different.
Beyond the economics, there was in his view another diplomatic/security
argument to be made. "NATO is a little wobbly, it is the
only glue across the Atlantic, it is our only commitment to each
other." Calling TTIP an economic NATO was bad for a lot of
reasons, but was good shorthand in that it conveyed the message
quickly. But it was the wrong label because it gave the impression
that there was an enemy. The idea of TTIP as a "second glue"
across the Atlantic could, however, be helpful. Having another
link across the Atlantic at a time when the old link we have (NATO)
was for an old purpose which doesn't seem to be there. Arguing
that case could be helpful. The notion of keeping standards high,
not letting the US-EU way of life deteriorate in the international
global system, and explaining that that meant doing a bit more
with European colleagues, would also have a bit of resonance in
some circles, he predicted.
109. In the end, when it came down
to the US Senate or members of Congress, they would ask to questions:
first, what it would mean for their constituents. Studies about
what the TTIP would mean for states would therefore be quite important.
Second, there would be a lot of other questions unrelated to the
agreement about the US-EU geopolitical relationship in general.
The geopolitical argument would therefore have to be in place
as well as the economic.
110. There was a danger that the
US-EU relationship would be seen in the US as a legacy relationship
that was less relevant to the current world. Unless there was
adjustment of the nature of the relationship, rebalancing of the
pivot, it would increasingly be seen as that. Why would you do
a deal with Europe if it is seen as sick and sclerotic economically.
The US was basically saying to the Europeans that they needed
to rebalance the relationship in three ways. One was in the security
partnership. There was still a commitment to the NATO alliance,
still a commitment the US would provide assets only it has in
crisis, but it doesn't have to run the show every day or be in
command of everything. The Europeans would have to pick up some
of the slack, especially around their periphery. The second was
to suggest there was a need to rebalance the economic security
relationship. The health of the transatlantic relationship had
for decades been defined primarily through the military prism,
and had failed to tap the huge potential of the economic dynamic,
and that was what TTIP was an attempt to do—to add this
second glue to NATO. It would help with the rebalancing in that
area. The third rebalancing was that Europe needed to help with
issues beyond European shores. Europe was no longer the problem,
but wasn't at present part of the solution either.
111. Gary Hufbauer cautioned that
this point of view was what people in Washington might think,
but that beyond D.C., outside the beltway, no-one would care about
NATO and that there was not a security complaint outside the beltway,
where Europe was still seen as a reliable partner e.g. on Iran,
Syria and Afghanistan. He described the US pivot to Asia as a
pivot of economic opportunism, but not a realistic substitute
for the US security relationship with Europe.
US Treasury
The Committee then held a private discussion
with Sharon Yuan, Deputy Assistant Secretary for Trade & Investment
Policy and Susan Baker, Director of the Office of International
Banking and Securities Markets at the US Department of the Treasury.
Senator Orrin Hatch
The Committee also took evidence from
Senator Orrin Hatch (Republican—Utah), ranking member of
the Senate Finance Committee, and Everett Eissenstat, Chief International
Trade Counsel in the Senator's office.
112. Asked about the level of political
backing for TTIP, the Senator said it was very high on his agenda,
but had somewhat slowed down because of the appointment of Senator
Baucus to become Ambassador to China. The Senator and his colleagues
would like to pass TPA before Senator Baucus went to China. Without
TPA, he was concerned that the EU would not take the US seriously.
So TPA was an extremely important instrument for the US. With
Baucus leaving, the new Chairman of the Finance Committee would
be Ron Wyden from Oregon. It remained to be seen whether the incoming
Chairman would want to revamp the whole agreement. If he did,
the agreement would probably have a difficult time making it through
even the Senate. TPA was absolutely critical to doing the TPP
with 11 nations and TTIP with 28 nations. The Senator was under
the impression that the Administration did not think they could
get TPA passed before Baucus left. This would mean having to work
with Senator Wyden. Senator Hatch was confident that were they
to bring up TPA at that moment in the Finance Committee, it would
pass overwhelmingly. If it were brought to the floor it could
be passed there too. But first the Administration needed to ask
the Committee to get it done. The President had made all the appropriate
gestures about it, but so far had not really weighed in.
113. Asked about financial services,
the Senator confirmed that he did want to see financial services
included in the agreement, but noted that he also felt strongly
about intellectual property issues, because that was where much
of the future was, in his view. International trade would be a
mess without those protections.
Senator Debbie Stabenow
The Committee took evidence from Senator
Debbie Stabenow (Democrat—Michigan), Chair of the Senate
Agriculture Committee.
114. The Senator explained that
continuing to open up markets and create export opportunities
for US businesses and farmers was very important. There were a
number of trade agreements presently under negotiation. The TPP
was much more complicated. The question of TPA was controversial.
Members of Congress were interested in seeing agreement by agreement,
rather than giving overall authority, so there was a split on
that among Democrats. Among the different trade agreements, the
agreement with the EU was probably the one that people were most
comfortable with. They had not gotten into specifics yet. There
was a new incoming Chairman of the Finance Committee, who she
expected to be very pro-trade but who would want people to be
working together. Senator Stabenow described herself as "falling
in the middle on this": she wanted open markets and trade,
but would be looking at benchmarks in terms of fairness, such
as currency manipulation. From an agriculture standpoint, one
area of difference would be GMOs.
115. Asked about whether the impression
that the Democratic party was not very keen on TTIP, the Senator
suggested that it would depend on how it was written and what
it would look like when it was done. There was not a "knee-jerk,
automatic no"—it would really depend on the details.
She and other Democrats had voted in favour of the trade agreement
with South Korea, but it had taken time to get it to a point where
she and others felt it was right and fair for their industries.
It would therefore in her view not be right to make a blanket
statement. For the Democratic party it would be very much about
the details: enforcement, non-tariff trade barriers, and so on.
116. Asked about the main concerns
among Democrats about the TPA, the Senator said that in general
people were concerned about TPA giving the President authority
to negotiate without elements that relate to the environment,
labour standards, making sure that TPA would require certain parameters
around different issues so as to create a level playing field
and prevent trade from creating a race to the lowest common denominator
for protections. They were concerned about making sure that trade
raised all boats in terms of standards of living. The US and EU
shared the problem of competition from other lower-wage countries
and so it was about how to raise standards in other countries
instead of lowering their own.
117. Responding to a question about
the President's commitment, Senator Stabenow indicated that the
Administration were very committed to TPA and both trade agreements
(TPA and TTIP). People in the Democratic party had very different
perspectives on trade depending on which part of the country they
came from. Those that were on the coast—California, Oregon,
Washington State—that were more export-focused were more
likely to say "yes" immediately to TPA, than those in
the middle of the country like herself. The President would not
automatically get TPA just by indicating he wanted it, but the
Administration had already started talking to her and colleagues
about it. The process that would be necessary had only just begun:
there had been only one hearing on the TPA bill.
118. On the prospects of getting
some sort of agreement on agriculture, Senator Stabenow suggested
everything was on the table. She had met with members of the agriculture
committee in the European Parliament. Most of them still felt
that GMOs were inherently unsafe, even though the science did
not show that. In the farm bill they had just passed there were
those that wanted products labelled in a way that would scare
consumers without any evidence that anything was unsafe, and that
had been rejected. Which was not to say that something could not
be unsafe, but that it needed to be judged on the science. Every
agricultural product was modified in some way, starting with hybrid
varieties of wheat and corn. Many GM modifications were good for
the environment. From an agriculture standpoint, US producers
would want to make sure that they could continue to sell into
the European market and wanted open markets, and were thus pro-TPA.
They were concerned about SPS issues and non-tariff barriers.
She suggested that people were probably open to looking at everything,
including geographical indicators, depending on how it all came
together as a package.
119. On financial services, the
Senator said that she did not have the same views as the US Treasury.
Through the Agriculture Committee, she was involved in the regulation
of agriculture derivatives, and the Committee also had oversight
of the Commodity Futures Trading Commission (CFTC). They had been
looking at a lot of cross-border issues, and had passed stronger
regulation. There was a real concern about stepping into the middle
of that through a trade agreement and changing the things they
were trying to do.
120. On the auto industry in Michigan,
Senator Stabenow suggested that it appeared to be an opportunity
for the industry. They were very nervous about Japan, but optimistic
about Europe.
Alliance of Automobile Manufacturers
The Committee held a private discussion
with representatives of the Alliance of Automobile Manufacturers
and representatives of the member companies of the Alliance.
Day Three: Thursday 30 January
American Farm Bureau Federation
The Committee took evidence from David
Salmonsen, Senior Director, Congressional Relations, and Veronica
Nigh, Economist, American Farm Bureau Federation.
121. Mr Salmonsen suggested
that the issues in transatlantic trade in agricultural products
were the old ones, including issues around meat exports—EU
barriers on beef, poultry and pork—and issues around the
movement of GMO products, for example the timing of approvals.
He went on to suggest that many of the issues that the EU presented
as food safety issues—such as GM or hormone treatment—were
in fact trade issues, and restrictions served as a trade barrier.
This was why the US had taken the WTO case on hormone-treated
beef. The TTIP provided an opportunity to get an agreement to
open the market up again.
122. On the subject of GMOs, Mr Salmonsen
suggested that for the US industry, the issue was about timeliness
of approvals. The European Food Safety Agency was coming to the
same conclusions as the US Food and Drug Administration, but then
the process would grind to a halt when it got to the political
level. In their view, the concerns in some EU member states around
GM were to do with the structure of agriculture, rather than food
safety.
123. On the subject of Geographical
Indications, Mr Salmonsen noted out that where the US industry
had balked at EU proposals was in regard to single names, such
as parmesan or feta. If one were talking about combination names,
perhaps there might be room to discuss. If a compromise were there,
it would be along those lines.
124. Mr Salmonsen explained
that in respect of Greek yoghurt, for example, the dairy industry
in New York State had made a significant investment which they
would not wish to give up.
125. Ms Nigh suggested that the
issue of GIs would resolve itself over time. There was a big change
underway in the way American consumers view food products. Consumers
were now seeking the two-name products. As the American palate
adapted and changed, these things would find a place, and a way
would be found to allow co-existence of the two types of products.
126. In respect of tariffs, Mr Salmonesen
explained that the higher EU tariffs on for example beef, pork,
poultry and feed grains—were where the US agriculture sector
had offensive interests. They had defensive interests on dairy,
and also on meat exports from the EU. A lot of the US dairy industry
was regulated at the state level, meaning an organisation of state
dairy regulators would have to get together and agree to changes.
127. Ms Nigh added that on processed
food products, it was very difficult for US exporters to understand
what tariff their product would face. There was therefore also
work to be done on the administration of tariffs, and Tariff Rate
Quotas.
128. On unpasteurised cheese, Mr Salmonsen
noted that it was a huge health concern, ever since a tuberculosis
problem in the 1920s. Nonetheless there was no outright ban—instead
products need to be stored and cured in a certain way, and these
restrictions also applied to US products. Such products did however
tend to be regulated state-by-state. The organised dairy industry
would be concerned about anything that made their industry look
unsafe.
129. Ms Nigh noted that 20 years
ago, the US sent only bulk products to Europe, while the EU sent
only processed products, whereas now transatlantic trade in food
and agriculture products was much more complex. Accordingly, the
cumulative effect of lots of small changes would make a TTIP deal
in agriculture successful. No single change would provide multi-billion
dollar benefits.
130. On the subject of political
representation for the US agriculture sector, Mr Salmonsen
noted that there were agriculture interests in every seat in the
Senate. In the House of Representatives, around 120 members paid
close attention to agriculture issues.
131. He suggested that since the
1970s, US labour unions had been hard-wired to oppose trade agreements,
out of concern about losing jobs. In the case of the TTIP, people
would not be shifting manufacturing to get a cost benefit, but
the labour unions might nonetheless stay quiet rather than support
the initiative. He went on to suggest that the Democrats would
not want a trade agreement hitting Congress this year [2014],
as they would need funding and on-the-ground political muscle
from the labour unions.
132. Mr Salmonsen nonetheless
pointed out that trade agreements concluded by the US administration
did get passed, even if they sometimes needed to wait for political
conditions to fall right. The best odds of passing a TTIP agreement
might be in 2015, or early 2016. It would not be possible to go
further into 2016 and closer to the presidential election unless
the labour unions were to support the initiative. It had often
happened in the past that one administration negotiated an agreement,
and a subsequent one got it passed.
133. One-third of the value of US
agricultural production is exported, Mr Salmonsen noted.
Ms Nigh pointed out that trade was an abstract notion for most
voters, with import penetration in the US being relatively low
(around 15 per cent of sales). It would therefore take a long
time for elected officials to work up the voter appeal of the
initiative.
134. The American Farm Bureau Federation
strongly supported Trade Promotion Authority. Some crops were
almost entirely exported. It would be better to have the debate
on trade on the procedural TPA bill and not on the substantive
agreement itself.
135. The US agriculture industry
also had an interest in trade facilitation measures, to the extent
that many of their products—e.g. fruit and vegetables—were
perishable, and keeping them refrigerated raised costs the longer
they were left sitting around.
EU Delegation to the United States
The Committee held a private discussion
with Mr François Rivasseau, Deputy Head of the Delegation.
British American Business
The Committee held a private discussion
with representatives of British American Business and representatives
of member companies of BAB.
Office of the US Trade Representative
The Committee took evidence from Ambassador
Miriam Sapiro, Deputy US Trade Representative.
136. Ambassador Sapiro began by
noting that the European Union as a whole was the US's largest
trading partner, and there was a substantial relationship already:
nearly $4 trillion in two-way trade and investment, that supported
about 13m jobs on both sides of the Atlantic. As impressive as
the numbers already are, they felt that there was scope to do
more together to promote economic growth and support and create
jobs on both sides of the Atlantic. She suggested that in view
of the economic challenges that the US and EU are still facing,
there was a common view that they "cannot afford to leave
any jobs on the table".
137. USTR had told the European
Commission that they were "ready to work as hard and as fast
as they want to". They recognised that the European Parliament
would be having elections in May, but were hoping that it would
not affect their work, as most of it was still at the technical
level, in working groups going over a range of issues. It would
be important to keep the momentum going.
138. On the subject of financial
services, the Ambassador stated that the US strongly supported
having financial services market access issues as part of the
agreement. These issues were part of their other trade agreements
and should also be part of this one. It had been proposed that
under the topic of regulatory cooperation, they should also look
at regulatory issues affecting the financial services sector.
Their response was that they had some very sound existing mechanisms
already working on this very question, and they did not see the
value added of introducing another channel when the FMRD, various
G20 initiatives, the FSB and other groups were already in place.
Both sides had an interest in making sure those processes were
working well, but they did not see the rationale for trying to
move processes already working into a new agreement that isn't
even written yet, much less being presented to Parliament or enforced.
139. The discussions already underway
in several fora should continue in parallel to TTIP. TTIP should
be used on problems that do not currently have solutions and where
solutions could only be found in a trade agreement.
140. Asked about their efforts to
bring regulators on board in order to learn the lessons of past
attempts to conclude an EU-US agreement, the Ambassador said that
they were determined at the highest levels to find a new way forward.
From the outset of the negotiation, they had worked very closely
with their regulators and were under the impression the European
Commission had done the same. If there is a way to improve the
status quo, they believed they would find it.
141. On the subject of the TPA bill,
the Ambassador said that they were very pleased that Congress
had introduced a bill, there were many members taking a look at
it, and what had changed since 2002. Things had changed—US
standards had gotten higher, for example on labour issues and
environmental protection, and it was appropriate to reflect that
in new legislation. She saw it as Congress' opportunity to tell
the Administration what it would like to see in a trade agreement.
Even though the exact timetable was not known—and they hoped
it would be soon—it did not directly affect their work.
They had had over 1,000 consultations with Congress on the TPP
since it was launched. So they were actively engaged with Congress.
It was a similar process with TTIP. They had formally sent a letter
to Congress last year setting out their intention to open negotiations
with the European Union, and since opening negotiations 90 days
later, they had already had hundreds of consultations with Congress
on TTIP.
142. On the subject of agriculture,
the Ambassador said that whether it was a question of hormones
or GMOs or any of the other agricultural issues that had plagued
the relationship, it came down to whether or not the EU and US
were using scientific assessments and risk assessments in an appropriate
and non-protectionist way. They would fight for that principle.
They wanted to make sure the agreement had high standards on SPS
and decisions on both sides were made reflecting science and risk.
In terms of GIs, it was less of a concern for the UK, she questioned
whether there were practical problems in accessing the US market.
They did not accept that the US should not be able to sell products
like parmesan cheese in Europe or in any other country in the
world, but they did want to know if someone with a product from
Europe was having trouble getting access to the US market. The
US operated a trademark system. Many GIs were registered as trademarks
and were functioning fine as far as she knew. Broad protection
for GIs would create as many problems as some people thought it
would solve. On the Canada agreement, she would be happy to take
a look to see if there were provisions that would be useful to
take into account.
143. On the use of hormone treatments,
the Ambassador pointed out that there had been a number of cases
where EFSA had agreed with the United States, but where under
comitology and weighted voting it had taken a while for the Commission
to get to the right decision.
144. On the subject of procurement,
Ambassador Sapiro explained that they were still in the process
of discussing interests on both sides. The EU had indicated interest
in more access to US states. They currently had 13 states not
signed up to the relevant WTO agreement. The EU was seeking more
access across the 50 states and more access to federal procurement.
The US had similar interests in Europe. There was sometimes a
perception that Europe was more open, but when one looked at the
detail it could be seen that that was not the case. There were
instances where Europe had indicated openness to certain programmes,
but when reading the small print one saw they were not open to
the US. So there were challenges on both sides. Sometimes it might
be a matter of transparency, or information only being published
in certain languages that are not spoken outside a certain country
or two.
145. Responding to a question about
ISDS, the Ambassador welcomed the Commission's public consultation
on the issue. They had had a similar consultation in the US about
2 or 3 years ago. The dispute settlement provision, if balanced,
could successfully weigh the interests of regulators and the interests
of investors operating overseas who were concerned about getting
a fair hearing.
146. On the automotive sector, the
Ambassador suggested that regulators on both sides were determined
to see whether they could find more common ground and ways to
address similar situations. She did not see either side changing
their safety standards.
147. On tariffs, the Ambassador
pointed out that tariffs were already relatively low, but that
the volume of trade was so high, particularly on industrial goods,
that the lowering of tariffs would have an impact and that they
hoped to go to zero across the board, in time. The biggest "bang
for buck" would however be on the regulatory side. The regulatory
process needed to be more transparent, needed to have more participation
by more people, needed to be more accountable. Their hope was
that the EU would inject that kind of transparency into some of
its processes. It would also help the Commission to be seen as
more responsive to European citizens.
148. On GMOs, the Ambassador pointed
out that Europe has a regime for approving GMO applications, it
just takes a while, usually several years, when it is supposed
to take a few months or one year. The system is backed up, but
there is a system, the EU does process GMOs, they are not illegal.
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