November 12, 2014
(As prepared for delivery)
Thank you for that kind introduction, Bernhard. It is good to be back in Germany, where I have spent a significant part of my professional life. Thirty years ago I worked during the summer at Radio Liberty in Munich; 23 years ago I had the opportunity to work in the Legal Department of the Treuhandanstalt in Berlin; I have been a regular student at the Goethe Institute, in Brussels, then Berlin and even in Frankfurt this year while I was awaiting my Senate confirmation.
After an internship in the European Commission in 1990, I faced a critical decision about whether to start my career in the United States or in Europe. Unusually for a U.S.-trained lawyer, I decided to start it in Brussels: because of the single market program and the opening up of the EC to the former Soviet bloc, it seemed like a historic time and I wanted to be part of it. I feel the same sense of historic opportunity today. The importance of further European integration and of closer transatlantic cooperation is now more evident than ever. The transatlantic partnership has deepened at times of crisis, and this time is no different. The only relevant question for us is: will we seize the opportunities?
The Transatlantic Trade and Investment Partnership Agreement (TTIP) is one of those opportunities. Germany, Europe’s export powerhouse, should be the most enthusiastic of all the 28 Member States of the EU because it stands to benefit so much.
Instead, we see a growing skepticism among some parts of German society about what it is we are trying to achieve.
In the United States, I am confident there will be support for the deal. The idea of doing a free trade deal with a region that shares our values and the high standards of health, safety and environmental protections is not particularly controversial. The U.S. mid-term elections held two weeks ago will not negatively impact TTIP. Senators Mitch McConnell, due to lead the Senate majority, and Orrin Hatch, due to lead the Senate Finance Committee, were quoted as welcoming international trade deals and fast track negotiating authority. The Republican Chairman of the House Ways and Means Committee Dave Camp was recently in Brussels and met with members of the European Parliament. He assured them that there is bipartisan support for fast track. Now that the mid-terms are over, there is likely to be more appetite to talk about trade. Fast track must be concluded before TPP is finalized, which may soon be the case.
Tonight I don’t want to get into the details of the substantial work that has been done over seven rounds of negotiations. I simply want to make a few general observations about what we are trying to achieve, before addressing a few misconceptions.
Simply put, TTIP is about providing consumers with more choice and better products at lower cost; it is about growth and jobs necessary to provide work for the unemployed, to fund pensions for our retirees and pay for the health, safety and environmental protections our citizens demand; it is about providing business, especially small- and medium-sized businesses greater opportunity to export and to have access to cheaper inputs so that they can grow and be more competitive. Much of what we are trying to achieve is actually a natural extension of what Europe has already done in creating a single market without tariff walls in which goods and services can circulate freely. There are many vocal critics of the T-TIP negotiations, but there are no critics of the extraordinary achievement of the single market, and for good reason.
Although T-TIP is certainly an ambitious undertaking, especially due to its focus on removing non-tariff barriers, both sides have negotiated many free trade agreements in the past. We know from our own experience (including the North Atlantic Free Trade Agreement) that these agreements have in fact stimulated exports, high-paying jobs and consumer benefits. And we also expect that the deal to cut tariffs on hundreds of products covered by the Information Technology Agreement, agreed yesterday, will also stimulate exports and high paying jobs.
I noted with interest President Juncker’s recent open Mission Letter to Commissioner Malmstrom. In it he instructs her not to conclude a deal which ‘”threatens Europe’s safety, health, social and data protection standards, nor jeopardizes [Europe’s] cultural diversity.” We do not believe there is a risk of this occurring; we believe that the case for T-TIP is positive, not a double negative. The United Sates is growing at 4.6% and has lowered unemployment to 5.8%, but we remain enthusiastic about what a trade deal could do to further boost growth and jobs. Too many people have dropped out of the job market in the United States; too many young have remained out of the workforce for us to be satisfied with the current state of affairs.
Frankly, I am puzzled by arguments that the Commission’s projections regarding T-TIP’s impact on jobs and growth are too optimistic. Perhaps these projections are too optimistic; perhaps they aren’t. There are many serious studies on both sides of the Atlantic that have arrived at roughly similar conclusions. But that’s not the point. There is no doubt that T-TIP represents one of the best levers available for stimulating growth without increasing debt. It isn’t the only one: the completion of the single market, including in services and particularly in the digital single market, and the implementation of needed structural reforms are also important. But neither Europe nor the United States can afford the luxury of passing up this opportunity on spurious grounds that the benefits are not large enough or that they will take time to realize. Even though Germany’s unemployment rate is the envy of Europe, Germany should not pass up on the opportunity of stimulating employment either.
T-TIP is all about evolution, not revolution. The U.S. and the EU already have a deep and mutually beneficial economic relationship: the U.S. affiliates in the EU provide 4.2 billion direct jobs to EU citizens, and EU affiliates in the United States provide 3.8 million jobs to U.S. citizens. The United States invested €313 billion in the EU during 2013 according to Eurostat, making it by far the largest foreign investor. The EU has long been the largest foreign investor in the United States. As Chancellor Merkel pointed out during her trip to Washington earlier this year, there’s half a million American jobs supported by Germany companies and just as many German jobs supported by American companies.
One of the key areas of focus in the T-TIP negotiation is tariffs. Although transatlantic tariffs are generally low on both sides of the Atlantic, there are high tariffs in numerous areas that represent significant obstacles to trade. Even in the many instances where tariffs are low, they can represent obstacles in many sectors with low profit margins. According to a well-known study, a transatlantic zero-tariff agreement could boost U.S. and EU exports to each other by 17%. Tariff reduction can also help to reduce the cost of inputs, an extremely important objective in an increasingly globalized marketplace. Businesses based in Europe already face very high energy costs and, in some places, high labor costs; their ability to survive in a global supply chain will depend in part on their ability to source goods at the lowest possible price.
Small and medium sized enterprises (SMEs) are expected to again significantly from T-TIP because SMEs tend to dominate the sectors where increased trade is expected to result from an agreement. Even those SMEs who do not sell to the U.S. market may benefit from increased sales to customers who do. Lower input costs, including for energy, will particularly benefit SMEs that are part of a global supply chain. Let’s not forget that LNG exports to Europe would be facilitated by a free trade agreement between the United States and the EU.
Our negotiators are working to cut customs duties on goods sold by small businesses to U.S. and European customers. We’re working to reduce customs paperwork, perhaps even eliminating it for lower-value shipments. And we’re working to reduce the amount of time that recipients have to wait for their goods to be released.
Whether in Frankfurt, Germany or Frankfort, Kentucky, businesses of all sizes stand to benefit from these efforts. For some businesses, especially small and medium-sized businesses, less customs paper work and lower duties could mean the difference between growing through exporting overseas or remaining confined to local markets. Consumers could choose from a wider variety of products and gain from lower costs. Producers could spend less time and resources on meeting duplicative testing requirements and filling out unnecessary customs paperwork.
We can only achieve the full potential of T-TIP if we succeed in narrowing the divergence in our regulatory and standard setting systems. This is the area of greatest economic promise, especially for small firms that struggle to spend the time and resources managing multiple regulatory requirements; but it is equally the area of greatest challenge. In some instances we may be able to agree on common standards where the existing differences are modest; in other areas, we might be able to agree on mutual recognition where the standards provide equivalent degrees of protection. Even in those areas where common standards or mutual recognition is not possible, we may be able to achieve significant benefits from eliminating duplicative tests of products and facilities.
This regulatory component is the “key to success”.” Some analyses indicate that up to ¾ of the total benefits of a deal will depends on our ability to address non-tariff barriers, specifically the elimination of duplicative or unnecessary hurdles. Our sectorial discussions on regulatory convergence in such sectors as automotive, chemicals and pharmaceuticals are technical and difficult, but they are proceeding.
With regard to the automotive sector, we are discussing the alignment of safety and, perhaps, emissions standards. If the United States and the EU would recognize each other’s crash tests and related standards, estimates are that price savings could range up to 7% on each car and truck. I understand that discussions are advancing with regard to agreeing functional equivalence related to seat belts.
On pharmaceuticals, the FDA and the European Commission are exploring relying on each other’s inspections of manufacturing facilities. On chemicals, I understand that our teams are focused on two areas: (1) sharing the burden in testing substances that either side has prioritized for further assessment; (2) cooperating to reduce divergences in our regimes for classification and labeling. We are also working to create mechanisms to reduce future unnecessary regulatory divergences, including in emerging technologies, such as e-vehicles.
This is hard work, but we have had some success in the past. Look at air safety. Thanks to an agreement between the U.S. and EU in the regulation of civil aviation safety, specifically promoting reciprocal acceptance of repair and maintenance standards, you can fly on an airplane and be confident in its safety, regardless of whether it has been serviced in the United States or Europe.
We are also discussing alignment around future regulations. The United States believes that we can achieve this if we better align our regulatory processes so as to avoid unnecessary divergences by improving transparency, participation and accountability in the regulatory and standards-setting process.
As our Trade Representative Mike Froman has said:
“…we should be able to publish an agenda of our upcoming regulations, and highlight the ones that have an impact on trade. We should be able to publish the text of the proposed regulations when they are in details but still in draft form, at a stage when input can be meaningful. We should be able to provide for all stakeholders – companies, labor unions, civil society organizations, individuals – from any country – provide them with the opportunity and time to comment on these draft regulations. And when our regulators take a final decision, they should be able to respond to the substantive comments and explain how their regulations are grounded in science and evidence.”
In the United States, as you know, regulators, publish proposed regulations, solicit comments from stakeholders and respond to those comments before finalizing the new rules. We have proposed that the European Commission publish the text of draft legislation for stakeholder comment before formally submitting it for consideration to the Council and the European Parliament. The Commission publishes concept “green” papers explaining its thinking and aims regarding future legislation, but it is not required to publish draft text. President Juncker has instructed his deputy Frans Timmermans to report to the College within 12 months on how the EU’s approach to regulations could be strengthened. We have a common interest in promoting this.
Finally, I’d like to emphasize that T-TIP would also be of tremendous geostrategic importance – a point that I think is under appreciated, and should be discussed more. T-TIP would set a standard for future regional and global deals that reflect the value we place on rules-based trade, high standards, and regulatory transparency and accountability. It would enhance the U.S.-EU global partnership in the realm of trade negotiations, helping to make progress in stalled WTO talks and ensuring that world trade rules will continue to be compatible with free-market democratic systems. We have a window of opportunity during the next few years to set a standard for future regional and global trade deals that reflect our shared support for rules-based trade, high standards and regulatory transparency and accountability. If we fail, other countries who do not share our values and whose weight in the international tradition system is growing fast will set the agenda themselves.
This ambitious project is also very much in progress, and we need to give the negotiators time to continue with their work. We need to stop the growing tide of misinformed criticism, often about peripheral issues in these negotiations, such as chicken washed in chlorine. To those who are skeptical about this agreement and who refuse to believe the assurances provided by both sides, I would simply say this: we are still in a relatively early stage of the negotiations; do not prejudge the results; wait until we have advanced texts. There are real, detailed points of disagreement over major issues. Let’s focus on the real topics and have a frank debate, rather than engage in criticisms based on fiction.
There are many fictions, but here are a few. First, that we are negotiating this agreement in secret. The critics who say this most loudly are also those who say that they hate the agreement. Well, you can’t have it both ways. To those critics I say: either you don’t know anything about the objectives of the deal, or you hate the deal. You must choose. The reality, of course, is that this negotiation is the most transparent ever held. Can we improve transparency? Of course we can, and we are listening to the constructive criticisms. But anyone who has negotiated deals knows that total transparency with third parties makes honest dialogue and compromise almost impossible. And I will also say this: it is time for the NGOs who criticize us for inadequate transparency in the negotiations to live by their word and to step out of the shadows by publishing detailed accounts and by clarifying for whom they speak and by whom they are financed. That is not the case today in Europe.
Another misconception is that T-TIP seeks to promote a deregulatory agenda. This is despite numerous assurances by the President of the United States, the President of the European Commission, and many political leads and senior negotiators on both sides of the Atlantic that nothing in T-TIP will in any way limit the ability of our governments to regulate in the public interest or reduce the level of health, safety, labor, and environmental protections. We in the United States value the right to regulate appropriately just as you do in Europe. And no, T-TIP will not force European countries to privatize public services, such as public health care, education or utilities; these services are excluded from the GATS and our own free trade agreements.
The myth that T-TIP will lower European standards persists, despite numerous academic studies – including one recent one authored by two European and two American experts – that conclude that the levels of health, safety and environment protection are not necessarily any higher in Europe that in the United States. And yet many U.S. standards are often more restrictive than those in Europe. Millions of European visitors to the United States are happy to eat our food and drive our cars. Our people, our government and our Congress respect the health and safety of the American consumers and value the right to regulate appropriately as much as you do. We don’t want to force European consumers to eat food they reject; rather, we want Europe to follow the advice of its own food safety authority and to give European consumers a choice, rather than to persistently ignore science-based decision making for political ends.
It is impossible to generalize about standards – there are thousands of them on either side of the Atlantic. Sometimes European standards are stricter, sometimes our standards are stricter. The U.S. Government and the European Commission agree that it is pointless to hold a beauty contest in this area: usually we regulate to achieve the same objectives, but do so in different ways.
And I could not discuss misconceptions about TTIP without mentioning investor state dispute settlement (or ISDS). German companies – large, medium and small – are significant sources of foreign direct investment, including in Europe. They are frequent users of ISDS. To the extent that these companies succeed in protecting their investments from abusive state behavior, they and their investors and their workers benefit. Germany has signed 136 Bilateral Investment Treaties containing ISDS, more than any other country in the world; it has negotiated them throughout the past 60 years under right, left and coalition governments. This country should be leading the charge in favor of ISDS.
The criticism that ISDS undermines the sovereign right to regulate is misleading. The threshold for bringing a successful claim is high: expropriation, discrimination, failure to accord due process, failure to provide fair and equitable treatment. Any investor can bring any kind of suit, of course, just as it could before national courts; but it doesn’t mean that it will win. The critics repeatedly refer to a handful of cases – including the Vattenfall case against Germany for the closure of its nuclear plants – without mentioning that those cases have been filed but not yet decided.
It is also wrong to state that ISDS favors investors: most cases are won by the states. It is also wrong that EU states are more often sued, than doing the suing. And the argument that ISDS is not needed between countries with advanced legal systems ignores the fact that there are 200 intra-EU BITs and that EU investors frequently resort to arbitration, presumably because they do not think that legal protections they receive in court is even across all 29 Member States.
This is not to say that there are not legitimate concerns – relating, for example, to transparency, use of shell companies, the ability of states to make binding interpretations of key provisions and so on. We have taken them on board in our own model Bilateral Investment Treaty, and the EU has done so as well.
Let me leave you tonight with one final thought. You have an important role to play in helping the public appreciate what is at stake. Those of you who export already appreciate the opportunities that global markets can provide. Those of you who have struggled with some of the inefficiencies that remain in our trade and investment partnership appreciate what you could do with the resources that you now put toward navigating the customs process. So you understand the potential and the importance of making our existing partnership even stronger.
This leads me to the issue of T-TIP messaging: the United States Government is not going to sell this deal in Europe; Europeans will have to sell this deal in Europe. If we want this deal, we will have to fight for it. We’re going to have to focus on the real issues, not the peripheral ones. We’re going to have to get on the front foot and aggressively counter the myths.
Both sides should focus on pragmatic, practical positions if we are to reach an agreement that promotes the interests of people in both Europe and the United States. We can get a good deal for both sides – but only if we stay focused, respect the facts and keep an open mind.