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US & EU: Small steps towards great leap in transatlantic economic integration

, November 13, 2014, 0 Comments

us eu transalantic TTIP-MarketExpress-inThe Transatlantic Trade and Investment Partnership (TTIP) is set to unite two of the worlds largest trading bloc in an union that promises great economic benefits. They are in process of negotiations but with many important issues stuck in a limbo the great excitement at the beginning have turned into a fatigue. An issue-based approach has been applied to understand the context and gauge the eventual impact of current negotiations standings.

Even after seven round of negotiations, the most recently at Washington DC Tariff still remains a potential sticking point. The aim of parties is to eliminate all tariffs but both parties still maintain tariff ‘peaks’ on dairy, sugar, tobacco and clothing, agriculture (including meat) and autos.

The EU proposal for tariff elimination explicitly conditions the elimination of tariffs in certain sectors and product categories upon satisfactory progress in resolving relevant non-tariff barriers. The EU offer is broken down into four categories: tariffs that will go to zero upon entry into force of the trade agreement, those that will be phased out after three years, those that will be phased out after seven years, and those that will receive unspecified ‘other treatment’.

The US sensitivities include light truck, wool, fisheries (sardines, tuna) and leather where tariffs are currently on the higher side. Due to high tariffs the US has collected $4.5 billion in tariff on Italian clothes and shoes, cheese from UK, France and Netherlands and German cars, which prominently figure in talks.

On Environment and Labour Standards Civil Society and Legislators from both side of Atlantic are demanding aspiration language.
Nevertheless, it is almost certain that there will not be any provision on enforcement of such standards. Moreover, the US has ratifies only two of conventions, but it unlikely that the EU will ask US to ratify as EU has not pushed such a condition in earlier FTAs negotiations. As far as environmental standards are concerned the EU position paper list number of international Multilateral Environment Agreements (MEA’s), the US is not signatory to four of them. In spite of the fact that there are no precedents in that regard the EU position makes it difficult to say whether the EU will ask the U.S. to sign those MEAs or not.

The potential sticking point in negotiations on Sanitary and Phytosanitary (SPS) Measures is of the ‘precautionary principle’ approach of the EU regarding and poultry and meat imports and will seek to lower the standards for animal health and welfare. EU has also been sufficiently clear that its position on the use of artificial growth hormones in beef industry will not be negotiated.

The EU is also pressing for commitment on principle of ‘regionalisation’ which limits the impact of SPS restriction on affected region rather than whole country. Both parties are being seen as defensive on general SPS issues. Further the reluctance of EU to embrace GMO has long been an issue between the parties. US have stated that it will not push EU to change its laws governing GMO. Instead it seeks to speed up the process of approval. The recent ruling of European Court of Justice (ECJ) that the EU is breaking law by indefinitely delaying approval of GMO however could put pressure on EC to act in the matter.

The issue of regulatory coherence is the most important for successful closure of agreement. The negotiation is currently tackled on a piecemeal basis. The cooperation in sectors such as autos, chemicals and pharmaceuticals is important for the EU. Other areas for potential regulatory coherence are information and communication technology (ICT), cosmetics, electronics, textiles, machinery, pulp and paper, railway, aviation and medical devices. In a major breakthrough that could go long way in bridging gap on the issue, the US and EU have agreed on an bilateral panel to breaking down new regulatory barriers between the two economies after the trade negotiations are wrapped up.

With exception of ISDS, the negotiations on investment provisions should be a smooth sail. Germany have clarified that it will only support inclusion of investor-state dispute settlement (ISDS), on the condition that it is only available to investors who have exhausted all legal options in national courts.

Both the parties are interested in maintaining a high level of IP protection including enforcement and corporation. As both sides of the Atlantic already have high levels of legal protection and enforcement, only the issue of trade secrets and pharmaceuticals has dominated the agenda. EC is currently in stage of developing a legislative proposal to harmonize the definition and treatment of trade secrets amongst member states.

The pharmaceuticals negotiation is concentrated on increasing the period of date exclusivity in new medicines called biologics for which the US provides twelve years of data exclusivity. The generic pharma industry is concerned that the US might seek twelve years for biologics, which will erode their profitability. The EU further wants enhanced protection for its geographic indications (GIs).

The access to government procurement at all levels of government will be enhanced on a national treatment basis. The EU is seeking ambitious market access in the field of defence and security however France is skeptic as it does not want competition with US firms. The EU mandate further states that the agreement shall also include rules and disciplines to address barriers such as localisation requirements (also referred as Buy-America restrictions).

After facing staunch criticism over secrecy, many senior officials of both parties are of the opinion that governments should keep civil society and other interested parties informed of the negotiations development to ensure their support for the final deal. Although many efforts through social networking and advisory groups are ongoing, much relevant information on negotiations is still obtained through anonymous leaks. The parties have also failed to work out an arrangement to share with EU member states the US negotiating documents, the US has agreed on limited secure reading rooms which are not acceptable to EU as member state relationship to the EC is fundamentally different and warrants a higher degree of access.

Finally, there is lot of scepticism amongst expert as to the final conclusion of agreement but they agree that a successful deal has tremendous value and benefits. The EC has conducted a study under an ambitious scenario to predict a GDP increase of 0.48 percent for the EU and about 0.39 percent for the US. The European Parliament (EP) heavily criticized the report as it concentrated on benefits rather than on costs and drawbacks and excluded the most sensitive agricultural sector. The EU has recently roped in another firm Ecorys to conduct a study deeper on probable economic, social and environmental impact of final agreement.