The United States and the European Union Prepare to Negotiate A Trans-Atlantic Trade and Investment Partnership (“TTIP”)
Kelley Drye Client Advisory
Executive SummaryThe United States and the European Union are in the early phases of embarking on a highly ambitious free trade agreement commonly referred to as the TTIP. If all goes as scheduled, each party will soon have followed its domestic legal procedures such that negotiations can start in late June 2013. Among the many areas to be considered are elimination of tariffs and other duties and charges on goods, removal of non-tariff barriers, harmonization of regulations, improved market access for government procurement and services, greater rights and protections for intellectual property and investments by one party’s investors in the other party’s territory, and stricter disciplines bearing on issues of global importance, such as the activities of state-owned enterprises and environmentally sustainable use and protection of natural resources. Exactly how the coming negotiations will unfold is difficult to predict, but their impact likely will be extensive. In order that stakeholders can have their perspectives on the issues taken into account, the Office of the United States Trade Representative has scheduled a public hearing on May 29, and May 30, 2013, and also will receive written comments submitted by May 10, 2013.
BackgroundAfter years of hesitation, the United States and the European Union announced in February 2013 their intent to pursue a far-reaching free trade agreement. In a final report released concurrently, a U.S.-E.U. High Level Working Group on Jobs and Growth (“HLWG”) recommended a wide range of issues be considered. Principally through better market access, reductions in non-tariff barriers, and more consistent regulations and standards, the main goals of this effort are to enhance trade in goods and services and to augment investment between the United States and the European Union. Another significant part of this undertaking will be the promotion of improved rules on global issues of common interest.
Underlying this agenda and its chances of success are several primary reasons why the United States and the European Union have set this process in motion. Among other factors, this initiative reflects (i) concerns over economic sluggishness, high unemployment, and financial turmoil, (ii) frustration over bilateral disagreements that the U.S. and the E.U. have contested with mixed results in other settings (such as dispute settlements at the World Trade Organization), (iii) difficulties in dealings with China, and (iv) lack of progress multilaterally in the Doha round of the World Trade Organization. Under these circumstances, the TTIP promises to be a complex, heavily freighted endeavor with historic significance and potential.
Building upon the HLWG’s final report, the United States and the European Union have each already begun internal procedures entailed with setting their respective negotiating mandates and negotiators’ authority.
On March 12th, the European Commission (“EC”) approved a confidential draft mandate (since unofficially made public) for review by each of the E.U.’s 27 member states. The EC has asked the member states for quick concurrence on the recommended mandate in time for negotiations to commence in June. In keeping with its normal practice, the EC is proposing to conduct the negotiations for the E.U. in consultation with the E.U.’s member states while reporting regularly to the European Parliament and its International Trade Committee on the negotiations’ progress.
Similarly, on March 20th, the Acting U.S. Trade Representative notified Congress that President Obama intends to initiate negotiations as early as late June. In addition, President Obama and key congressional leaders have signaled their willingness to renew the protocol known as Trade Promotion Authority (“TPA”), which expired on July 1, 2007, although TPA technically is not required to begin or conclude trade negotiations. This legislative mechanism represents a delicate balance between the constitutional authority of the President to negotiate international agreements and Congress’ constitutional authority to regulate commerce with foreign nations.
In particular, TPA enables the President to enter into international trade agreements and then to have the legislation needed to implement those agreements in U.S. domestic law considered by Congress under expedited legislative procedures. In this way, Congress can establish negotiating objectives and priorities for the President, as well as obligations that the President notify and consult with Congress during the negotiations, and U.S. trading partners such as the E.U. are reassured that the terms of an agreement arrived at in negotiations should not be undercut by congressional delay, obstruction, or amendment. Not surprisingly, the crafting of specific provisions to be included in TPA can be quite contentious between the executive and legislative branches and also between the Democratic and Republican parties. Especially with a trade agreement of the magnitude and importance envisioned for the TTIP, such friction can be expected to arise.
Once underway, it is hard to say when negotiations for the TTIP will be concluded. The end of 2014 has been mentioned in this connection, but it will not be surprising if more time is required, not least because the agenda is so lengthy and diverse that many U.S. and E.U. governmental agencies will be active in framing the substance of whatever agreement emerges.
Subjects to be NegotiatedAs remarked above, the negotiations that the United States and the European Union are contemplating embrace an extensive list of topics. As described in President Obama’s notification to Congress on March 20th, among the most significant matters from the U.S. perspective are:
- Elimination of all remaining tariffs and other duties and charges on goods, some immediately and others gradually.
- Termination or reduction of non-tariff barriers such as sanitary and phytosanitary (“SPS”) restrictions not based upon science and technical barriers to trade (“TBT”).
- Greater compatibility of U.S. and E.U. regulations, development of related standards to lower costs associated with unnecessary regulatory differences, and facilitation of trade by measures such as transparency in drafting and implementing regulations and good regulatory practices.
- Establishment of rules of origin and enforcement mechanisms to ensure agreed duty rates apply only to eligible goods.
- Improved market access, transparency, impartiality, and due process for trade in services.
- Development of provisions to aid (i) use of electronic commerce in support of trade in goods and services and (ii) movement of cross-border data flows.
- Agreement on (i) rights for U.S. investors in the E.U. comparable to the rights that would be available under U.S. legal principles and practice, (ii) ensuring that E.U. investors in the United States are not accorded greater substantive rights in protecting investments than U.S. investors are accorded in the United States, (iii) rights for U.S. investors in the E.U. to receive treatment as favorable as that accorded to E.U. investors and other foreign investors in the E.U., and (iv) meaningful procedures to resolve investment disputes between U.S. investors and the E.U. and its member states in a manner that is expeditious, fair, and transparent.
- Customs procedures that are transparent, efficient, and predictable and that are applied so as not to operate in a way that creates unwarranted obstacles to trade.
- For U.S. suppliers of goods and services, (i) expanded access to government procurement by the European Union and its member states and (ii) treatment in such procurement on a basis as favorable as that for companies located in the E.U. and in other countries.
- Recognition of labor rights and their enforcement.
- Strengthened protection for the environment and conservation of natural resources.
- High-level protection and enforcement of intellectual property rights for U.S. creators, innovators, businesses, farmers, and workers.
- Crafting of appropriate, globally relevant disciplines for transparency, reduced trade distortions, and other purposes with respect to state trading enterprises, state-owned enterprises, and designated monopolies.
- Stronger U.S.-E.U. cooperation for greater participation by small- and medium-sized enterprises in trade between the United States and the European Union.
- Commitments on anticorruption.
- Commitments and more cooperation on competition policy.
- Effective resolution of disputes arising under a trade and investment agreement between the United States and the European Union, including by means of early identification and settlement through consultations.
- Taking into account throughout the negotiations important objectives such as the protection of health, safety, environmental, essential security, and consumer interests.
The European Commission’s March 12th draft mandate to the E.U.’s 27 member states generally parallels and overlaps with President Obama’s March 20th notification to Congress. At the same time, while the EC’s draft mandate has similar coverage of topics, there are differences in perspective and emphasis. Thus, the EC’s draft mandate speaks of sustainable management and promotion of trade in legally obtained and sustainable natural resources such as timber, wildlife, or fisheries’ resources, whereas the March 20th notification to Congress is silent on this subject. With respect to government procurement, the March 12th draft mandate is more detailed than the March 20th notification and expressly names defense and security along with public utilities as fields that the E.U. wants to open on a mutual basis at the national, regional, and local administrative levels. Likewise, with respect to SPS measures, the E.U. is contemplating inclusion of animal welfare, a matter not highlighted in the March 20th notification to Congress. Study of the March 12th and March 20th documents reveals further variances.
It will be centrally important, of course, to see what changes result to the final negotiating mandates under any Trade Promotion Authority for the United States and after guidance is received by the EC from the E.U.’s 27 member states.
Opportunities for U.S. Companies and Workers to Be HeardWith so much at stake, it will be prudent, if not paramount, for U.S. companies and workers to educate themselves as much as possible about the pending U.S.-E.U. FTA negotiations and to provide their views on important issues to Congress, to the Office of the U.S. Trade Representative (“USTR”), and to other agencies and departments. While the direct negotiations will be conducted confidentially, there will be opportunities for private parties to submit information and express their opinions for consideration during the negotiations.
In this regard, USTR has invited interested persons to file written comments by May 10, 2013, and to participate in a public hearing that is to be held at the U.S. International Trade Commission on May 29, and May 30, 2013. Request for Comments Concerning Proposed Transatlantic Trade and Investment Agreement, 78 Fed. Reg. 19,566 (Apr. 1, 2013). Written comments are permitted without necessarily appearing at the hearing. If you would like to participate in this or any other part of this process, we will be glad to assist.