The tricky schedule

Internal documents reveal: negotiations on the most important free trade agreement between Europe and the USA getting bogged down. TTIP could fail.

von Justus von Daniels

It should all be so easy. The Member States of the EU and the USA have a close relationship; popcorn and chips are popular in both continents and their economies are closely interrelated. So it should be possible to hammer out a trade agreement fairly quickly. But it now seems that the TTIP timetable is breaking down – and that means the deal itself is under pressure.

Internal documents from the German federal government reveal that there are disagreements on just about all of the areas being negotiated. Even the EU Commission is admitting (in internal documents) that a lot more time is needed to broker a good deal.

Federal Chancellor Angela Merkel and President of the EU Commission Jean-Claude Juncker would like the TTIP deal to be wrapped up by the end of this year – so as not to be drawn into the US presidential election race. If this were to happen, negotiations could be wrecked.  Presidential candidates have to protect American interests – so they can’t just promote free trade with Europe.

Everything running smoothly… officially

Almost nothing has been revealed so far about the problems with the negotiations. At the wish of both EU and American leaders the deal is being negotiated behind closed doors. The secretiveness is clearly designed to cover up any problems.

At least that’s the impression when reading the internal TTIP documents CORRECTIV has published on its website.

The most recent round of the secret talks was held in Brussels in February. „There was steady progress“ in all areas stated the Commission in its press release at the end of the five-day talks. The EC also published a nine-page explanatory summary of the major points in the talks. There was no mention here of major progress having been made; the Commission wrote that there had been „constructive“ work in all the working groups. So far, so successful.

But we get a different picture from an internal information event organised by the Commission for representatives of the EU member states. We have a copy of the minutes, which went to the Federal Government.

The document is rather brief, but it is clear that the negotiations are not at all proceeding well – even in areas which had previously been thought to be uncontroversial and fundamental to free trade. The German Ministry of Economics also composed a separate report on the internal information event which was passed to the Parliament and other ministries. This report has been available on the Web since early March. This report also reveals conflicts in the negotiations – even if the wording in the Economics Ministry paper is significantly toned down. The question is – why was the ‘toned down’ paper leaked – and not the internal minutes of the EU event?

Disagreement on tariffs

If one compares the minutes of the EU event with the official press release, one might think they report on two different events.

For example: officially, both sides agree that the tariffs between the EU and US should be abolished to a great extent. Business expects to receive a big boost through being able to sell products more cheaply on both sides of the Atlantic in future. The Commission’s press release states: 

“Parties took stock of discussions held so far on agricultural tariffs. (…) Further engagement is expected in the next round.“

The internal document is rather clearer: 

“There was a large discrepancy between the preliminary tariff offers from the US and the EU. These must now be avoided if at all possible“.

In plain English this means: even after this eighth round of talks there is no prospect of agreement regarding tariffs – even though it should be easy to abolish them.

Investor protection on the back burner

The lack of progress particularly affects core areas. For example, investor protection isn’t even mentioned in the EU minutes. It’s a very contentious issue. Special courts are supposed to be set up to protect transatlantic investors – for example, if the parliament of a European member state passes a new law, US companies should be able to take the state to court if they believe that the new law contravenes the provisions of the trade agreement. Critics fear that the courts could effectively cancel democracy itself in Europe: an anonymous court would be superior to parliaments.

To date there isn’t much clarity about the courts. Both sides have agreed that the courts should consist of three private judges. But it’s not clear if the courts are meant to hold their sessions in secret or in public; nor whether a loser in a case has a right of appeal.

Similar courts are not uncommon in international trade. There have been lots of similar court processes involving other countries Germany has trade agreements with. The Europeans would like to limit the influence of the courts in the context of TTIP – also as a way of countering the critics of the deal. The US would like to increase their influence so as to continue to protect its investments in Europe.

But instead of making things clearer, the last round of TTIP negotiations simply failed to tackle the courts at all. And they won’t be on the agenda for the next round either. This part of the deal is at a standstill.

The EU insists on the right to bid for public procurement contracts In the US

The talks are also stalled on a second major issue: the awarding of public procurement contracts. The EU absolutely wants to have access to public procurement deals in American municipalities – German companies should be able to install sewage pipes in Wyoming. But the US would like to prevent that. Currently there is a law in the US saying that only American companies can bid for public contracts such as road-building, schools or the supply of official vehicles. Liberalization in this area would be very profitable for the EU. European companies are very competitive and would be able to make some good profits in the US market. But an agreement seems still very far away. The Commission press release says that 

‟…discussions …  have allowed a better understanding on each side priorities and sensitivities and showed that there is a need to intensify discussions…“

However, the internal German government paper states: 

“Opening up the American market for public procurement is a politically very sensitive issue in the US due to fears of direct impacts on the labour market“. 

This means that neither the individual US states nor Congress want to open their domestic municipal market to foreign companies. That would be bad for politics. As mentioned, there are elections in the not-too-distant future. The Americans fear that if TTIP is agreed, the very competitive European companies will pose a big threat to their American counterparts. Rather than jobs being saved in Kentucky, workers in Hannover would be getting the benefit.

Will there be a deal on the courts?

A deal could still break the stalemate: the Americans have already indicated that they might be prepared to talk about the courts under new conditions. If the EU was willing to take investor protection back into the negotiations, the Americans would be prepared to negotiate opening up public procurement. The Europeans could get their hands on some lucrative deals in the USA if the American investors were able to get investment protection in Europe. The courts are thus assuming the character of a bid in poker. The Economics Ministry report states:

“In relation to public procurement the US side has linked further concessions to the resumption of talks about investor protection/ISDS“.

US Congress doesn’t want to be told what to do

Another core part of TTIP is just as controversial – the idea of shared council tasked with preparing draft legislation. The plan looks simple. The trade deal should include the setting up, by the administrations, of a council whose job it would be to ensure common standards are agreed on – even before relevant draft legislation on commercial matters was referred to parliaments. I.e. if there is to be a new law, the governments of the EU and the USA should get together and consider how the law should be formulated so that it can apply on both sides of the Atlantic. And this should happen before elected representatives debate the draft laws. It’s not about laws governing how we live together in society or laws designed to keep the public safe – but all those laws that regulate economic life, and which are part of the trade deal.

A similar process has been operating in the EU for decades. All the EU Member States have negotiations on EU directives, which must then be translated into national law. With TTIP, the idea doesn’t go as far as this: the proposals coming from the joint TTIP Council would not be legally binding as in the EU, but would merely be well-intentioned suggestions. Nonetheless, critics fear that via the TTIP Council lobbyists could acquire much greater say than they would ever have in the national parliaments. This could allow environmental and job security standards in Europe to be watered down.

But the fears are not coming only from civil society critics. The TTIP Council is also controversial within the US and EU administrations. The EU is annoyed that the Americans are proposing what they see as an unfair deal. The US wants European laws to be subjected to a vote, whereas only laws proposed by administrations in the US should be included i.e. no laws proposed by the US Congress. The ministry report reveals the extent of the annoyance on the EU side:

“The disparity in relation to the field of application continues to represent a considerable obstacle“.

Quarrel over machines too

There is no agreement over standards either. This refers to technical specifications which have to be met on either continent before products can be sold there. In Germany plugs and lamps have to meet DIN standards – only then can they be sold in supermarkets. In the USA the corresponding standard is ANSI.

The different standards are supposed to be harmonized in the context of TTIP so that all manufacturers can sell their products in other countries. At the start of negotiations both sides said that they wanted to recognize each other’s standards – as long as they are technically comparable. That ought to be possible with mechanical products – as with fitting windscreen wipers into cars, for example. In its press release the EU states in relation to negotiations about machines that 

‟The EU and the US discussed the proposals for cooperation already presented in previous rounds“.

That begins to sound like a sensible discussion: there’s no agreement, but both sides are negotiating.

But the internal minutes give a different impression. The USA clearly has no interest at all in basically recognizing EU norms in respect of mechanical engineering. According to the minutes, it was difficult „to get the US side to commit itself“.

Why would the USA have no interest in recognizing the standards? Perhaps their concern is to protect their own market from European products. German companies producing machine parts and electronics components in particular could put a lot of pressure on their American competitors. So far, the different standards have helped them to avoid the pressure of competition.

The Americans put up the shutters and the EU Commission acknowledges that „there is a need for further discussions in order to overcome the diverging points of view“.

The EU has to pay high prices

In the area of food safety the negotiations appear to be going well. In its official report, the Commission states that there was 

‟a deep discussion of the US proposal. (…) The EU and the USA are now preparing a consolidated version of the text to be discussed in the next round“.

The internal document also speaks initially of a good negotiating atmosphere. However, the US proposal „differs significantly from that of the EU. (…) Animal protection is not included in the US text. There are diverging views between the EU and the US on its inclusion.“

What this reveals is a conflict on the issue of how animals are protected in agriculture and what kind of ‘manipulations’ of animals should be allowed. The EU representative on this issue is the EU Commissioner Cecilia Malmström. She said she will not negotiate on allowing imports of beef treated with growth hormones or of GMO plants. The US will not be too pleased about that. The Americans want to export their GM food. There seems little prospect of agreement on this any time soon.

Suntan lotion holding up the negotiations

The Commission likes to use the example of suntan lotion to demonstrate advantages of the TTIP deal. As of now, such creams and lotions made in the EU cannot be sold in the US. This is because the US has different test methods for suntan lotions than the EU. The Commission uses this as an example to show how pointless the different testing standards are; the TTIP deal is meant to change that. But there’s no convergence even for suncreams. The official Commission statement is that in relation to cosmetics 

“Both sides agreed that further technical discussions among scientists are necessary in order to approach requirements and methods for safety assessment of cosmetic ingredients“. This also applies to UV filters – and thus to suncreams.

However, the internal memo reveals that this is not about simple discussions between experts – but that there is a lot more that has to be resolved before even suncream can be sold on the other side of the Atlantic.  The report states drily:

“In relation to cosmetics there are large regulatory differences (e.g. suncream).“

Even before the negotiations started it was clear for many areas that it would be difficult to reach agreement. After the eighth round we can see that almost no progress is being made in these areas.

The offer is „a joke“

Among other areas, things are supposed to be made easier for the service sector – for instance telecommunication and private security. In order to promote transatlantic business models the US has put a proposal on the table which it believes is comprehensive. The EU has also put its own list on the table – a list which it sees as far-reaching. But – stupidly – both sides consider the other’s proposal as inadequate. As a result, the atmosphere is rather strained. US circles describe the EU’s offer as „a joke“.

This is how the Commission’s press release presents the matter:

‟a comprehensive review of the respective offers has resulted on a better understanding on how to achieve an ambitious outcome, while respecting our sensitivities.“

The internal document is more precise: „In order to make progress with the negotiations the diverging perceptions would have to be overcome. (…)  The Commission aims to avoid large discrepancies in a new exchange of proposals. This is an enormous challenge“.

Or, as said: what is on the table is „a joke“.

EU wants privileges for banks – US blocks the idea

Among the services that are to be harmonized there is also the financial market. The EU would like to negotiate some financial products and regulations with the US. But the Americans don’t want to be drawn into discussions on this topic. It’s only a few years since the big banking and finance crash – and banking rules are much tighter in the US than in the EU.

The subject of finance isn’t mentioned at all in the official press release. The internal report points out that it is very much in the EU’s interest to talk about financial matters: „But the Commission (…) made it clear that [finances] must be embedded in the TTIP. (…) Financial services would have to remain an integral component of the TTIP negotiations“.

A pity that the Americans don’t want to do that. They reject any common regulation or even liberalization of the financial markets. That’s why the EU negotiators see it as a success that the Americans are at least prepared to talk informally about the issue.

There are more of the same difficulties. The EU would like to import oil and gas from the US without any restrictions. To date that isn’t possible. The Americans want to satisfy their own hunger for energy with their own resources. The official position of the EU is that the negotiators are discussing „the scope of possible TTIP provisions on energy and raw materials.“

Negotiators don’t know what they are talking about

The negotiations about protecting intellectual property also seem to be extremely vague. The official line is that „short“ and „productive“ discussions have taken place. The Ministry report is more precise: „Even after more than one and a half years it remains to a great extent unclear what the content of the IPR Chapter should be“.

This area includes the important question as to whether the free exchange of data and thus data protection itself should be part of the agreement. Even the negotiators themselves don’t know.

There is also progress

Of course it isn’t all about conflict and disagreement. In some areas, TTIP is making good progress. There are few obstacles to agreement on the question of whether vehicle indicator lights can be simply approved both in the US and Europe. In the area of chemicals and pharmaceutical products there is agreement that no major agreements are to be expected and that a few pilot projects on common testing procedures should be launched instead. There are also some general sections in the agreement where one can find formulated proposed texts that are ready to be signed – for example on sustainability or support for small and medium-sized businesses to make it easier for them to enter the market. But even here there are specific conflict areas which seem almost bizarre:

“The US side reaffirmed its refusal to set up a central website such as the EU has. The Commission pointed out that this was an important demand of European SMEs“.

There are massive construction sites in almost every part of TTIP. Naturally, in international negotiations that are as wide-ranging as TTIP, conflicts are normal. The script for such negotiations usually provides for the big obstacles to be cleared out of the way shortly before the negotiations end. The Americans are well-known in trade negotiations for only putting their real offers on the table late in the day and then making the final deals in a couple of late-night sessions. But the internal report of the German federal government shows that there are fundamental conflicts of interest in many areas – not to speak of the detailed provisions, which are especially explosive in trade deals.

Officially, both the EU Commission and the Americans continue spreading optimism. But the Commission has already said in its internal document that significantly more time is needed: „More time pressure leads to less progress“ is what it says in the internal minutes. The eighth round of negotiations, it says, shows that the „TTIP negotiations cannot be concluded in the very near future. We have to have a politically realistic timetable“. If TTIP were to be ready by the end of this year, its two years of negotiations would set a free trade record. The CETA deal with Canada took five years.

Elections trouble the dealers

Pressure is mounting. If the quarreling over TTIP gets into the American election race the negotiations will really dry up. If there is a change of government there will also be a change in the leadership of the US Department of Trade. By the time a new US President decides how to proceed with TTIP there will have been national elections in Germany. Or in France. It will stay tough and slow.

The next two rounds of negotiation will decide whether there will be a quick final deal in which everything that is contentious will be auctioned off at the end. Currently, that’s just about everything. A delay could therefore give the deal a chance for prudence to come before speed. The next round takes place in New York. The dealers now have four days to make some progress.

Translated from German by Paul Carline