Ambassador Gardner’s Remarks on T-TIP at Bruegel Expert Roundtable

• The U.S. Mission to the EU is pleased to partner with Bruegel on today’s discussion.

• We continue to believe that T-TIP is good for the U.S. and good for Europe: a debt-free stimulus for jobs and growth. We continue to believe that an ambitious and comprehensive 21st century model trade agreement is possible. As the Vice President has said, there is no point being “crucified on a small cross.” A partial deal will also attract criticism, and would be even harder to pass our legislatures than an ambitious one.

• And, yes, we think we are very close to getting both trade promotion authority and to concluding a TPP agreement. I have met with numerous members of Congress on both sides of the aisle who believe that the votes are there, perhaps not by a wide margin, but they’re there. Neither TPA nor TPP has been a distraction from our T-TIP efforts. As Mike Froman has said: “We can walk and chew gum at the same time.”

• Soon after the change in Commission, our USTR and Commissioner Malmstrom announced a “fresh start.” The Commissioner has certainly injected new dynamism into the process. She has been travelling tirelessly around the member states, has significantly improved relations with the EP, and can take credit for improving the debate on ISDS, especially in Germany.

o I know she’ll have another opportunity to address the INTA Committee on March 18.  I hope she will be able to persuade them, especially the S&D members, as INTA’s T-TIP resolution will be voted on two months later by the full parliament during its plenary session.

• We welcome the recent creation of a Commissioners’ Group on T-TIP as a way to ensure coordination among the key members of the Commission having a stake in these negotiations: trade, agriculture, internal market, financial services, competition, economic and financial affairs and health and food safety.

• We welcome the focus of this Commission, especially VP Timmermans, on Better Regulation, or what we call regulatory coherence, as this is a major part of what we are seeking to achieve in T-TIP. If the U.S. and the EU adopt roughly comparable systems of regulation, that includes a form of notice and comment, as well as good regulatory practices, we will end up in the future with regulations that are more aligned.

• We also welcome the support for T-TIP expressed by many European heads of state, including most recently from Angela Merkel. In our view, we now need to see that top level support manifest itself in greater willingness by the Member States to let the Commission negotiate a full and balanced deal.

o President Juncker is quoted this morning as saying: “At the meetings of the European Council, [European leaders] have pledged their unfailing support [for T-TIP] and as soon as they go back home, I read their enthusiasm has waned. I want to get clarity on this matter.” We second that sentiment.

• Progress in the negotiations continues to be made, including at the last round, across all the working groups. We have texts at a relatively advanced stage in a number of areas, including SMEs, trade facilitation, rules of origin, State to State dispute settlement, competition and SPS.

• Why should Europe be enthusiastic about T-TIP?

o Simply put, T-TIP 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;

o 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.

 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 succeed in a global supply chain will depend in part on their ability to source goods at the lowest possible price.

 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.

 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.

o 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.

 At the time the single market was launched there were fears that it would lead to a lowering of standards and an influx of unsafe products; neither fear was realized, of course. And there is no reason to think that T-TIP would have such an effect.

• 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.

• The U.S. economy is doing rather well: we have seen the longest streak of private sector job gains on record, with 12 million jobs over 60 straight months. Last year was the best for jobs growth since 1999. The unemployment rate has halved since the financial crisis, down to 5.5%. The picture in Europe is obviously rather different.

• So we puzzled by arguments that the Commission’s projections regarding T-TIP’s impact on jobs and growth are too optimistic.

o 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.

o 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.

• But it is no secret that we need to speed up progress further if we are to get a deal done. Europe should want to get this deal done before the end of the President’s term, and ideally before the presidential campaign heats up by the summer of next year. If the next president is Republican, it would be hard for him or her to carry Democratic votes on trade; even if the next president is a Democrat, it would take about a year before the new administration is fully up to speed. By that time, there would be little time left in the Juncker administration to conclude T-TIP.

• There is no doubt that we continue to face some challenges.

• We are working on making progress regarding our tariff and services offers. Our first tariff offer was widely considered to be disappointing; but we have made clear from the beginning that it was the first step in an iterative process and that our ambition is to eliminate all tariffs.

• We have offered to match and go beyond the elimination of 96% of tariff lines that the EU offered. But the EU has stuck to its offer as going beyond it cuts into some sensitive agricultural tariffs.

• At the same time, we consider the EU’s services offer to be disappointing:

o The U.S. has tabled a services offer which is on par with KORUS, the best offer we’ve ever made (and that was at the end of a negotiation). The U.S. offer includes national treatment reservations in only four sectors; in all other sectors, we are offering to bind and ratchet existing treatment.

 The EU has argued that our negative list offer is hard to value because we haven’t provided clear information on existing restrictions in services sectors at the subfederal level. We disagree with that assessment.

o The EU’s offer is less attractive than what it has tabled in TISA, KOREU or CETA or GATS.

• Another challenge is the need to avoid unhelpful to talk about “red lines”; the S&D party in the EP in particular has repeatedly raised them, including during recent trips to Washington. The result has simply been to encourage members of Congress to press the administration to raise its own.

• Although the climate on ISDS has improved (there had been concerns that the Commission was considering taking it off the table), but we continue to have concerns:

o There are calls to reopen CETA because of ISDS. Interestingly, we have not heard similar calls with regard to the EU-Singapore FTA, which also includes ISDS. It is clear that ISDS can’t be included in either Singapore or Canada, and not included in T-TIP.

o Unhelpfully, Hungarian Prime Minister Orban has indicated that he won’t support a free trade agreement that removes jurisdiction over disputes from the Hungarian court system. Matthias Fekl, the French Secretary of State for Foreign Trade, and the French Senate want to remove ISDS from CETA and T-TIP.

o The S&D paper on ISDS released on March 4 indicate continued deep skepticism. While it is a significant step forward from the party’s previous attitude of complete rejection, it remains problematic. Laying down hard positions before negotiations have even begun is unhelpful.

 The paper says: “It is not reconciliable with the rule of law, that investors get a legal forum outside well-functioning judicial systems of the parties through a trade agreement.” The fact is that the EU has signed many BITs with ISDS among themselves and with OECD states; these only became controversial when T-TIP started being negotiated. More importantly, the intra-EU BITs with ISDS will remain in place even if T-TIP doesn’t happen. It is not acceptable that EU investors will get better protections than U.S. investors for their investments in Europe.

 EU member state BITs containing ISDS with non-EU countries, including Russia and China, will also stay in place if T-TIP fails. It is not acceptable that investors from such countries would get better protections than U.S. investors.

 The paper states that “there is no evidence that investment agreements – with or without ISDS – have any impact on investment flows.” That is not accurate: UNCTAD and other groups have concluded that such evidence does exist (though causality is difficult to prove), especially for long-term investments in natural resource industries.

 The paper suggests a number of areas for further improvement of CETA; some of these, including the prohibition of parallel proceedings, public participation in arbitration and guidance on indirect expropriations, are reflected in our Model BIT and are in fact already in CETA.

 The majority of the new elements the paper proposes are out of step with U.S. and global practice (including among EU member states) and would undermine treaty-based investment protection rules.

• We remain concerned about the tone of the debate in Europe, especially in Germany, Austria and Luxembourg. Much of the criticism about T-TIP in Europe has nothing to do with the agreement, but rather more about fears concerning globalization, free trade, fear of competing with the U.S., perceived lack of trust in the U.S., and myths concerning the attack on European standards.

• The risk to T-TIP in the U.S. will not come from philosophical differences with Europe; 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. Unlike in Europe, the risk will not come from a preoccupation with globalization; after all, the U.S. and the EU should be most at ease trading freely between each other.

o The risk will come from the view that there isn’t enough upside for certain key constituencies. U.S. merchandise exports to the EU-15 were lower in 2013 than they had been in 2008 despite a 21.4 percent increase in overall U.S. exports. Over the same period, U.S. exports to Mexico – one of our fastest growing markets — increased almost 50 percent and could overtake exports to the EU-15 within the next couple of years.

o One of the striking statistics I have seen recently concerns the growth in agricultural exports from the United States to Europe, relative to the rest of the world. Between 1990 and 2013 (23 years) U.S. agricultural exports to Europe have grown 60%, whereas in the past 8 years alone exports to China have quintupled and exports to Southeast Asia more than tripled.

o The EU currently benefits from a $9 billion surplus in transatlantic agricultural and food trade, in large part because the products where we are most competitive are prevented from entering the EU market. So if you were an American farmer, which markets would you consider most promising?

o Finally, there is a feeling that Europe is exporting its economic difficulties to the United States through a weak exchange rate and a result is gaining a competitive advantage. Watch this space: this narrative may gain currency.

• We all agree we need to make faster progress, because in addition to the manifest economic benefits of a deal, there are real and important geostrategic benefits:

o 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.

As the joint statement made by the United States and certain EU Member States at the G-20 Summit in Brisbane states: T-TIP is an “opportunity for us to promote the principles and values that we, as citizens of open economies and societies, share and cherish.”

o 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.

o 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.

o Globalisation is a fact of life; it cannot be escaped. Either we try to shape it or we will be shaped by it. 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. As President Obama stated during his State of the Union address a few weeks ago:

“…China wants to write the rules for the world’s fastest-growing region. That would put our workers and our businesses at a disadvantage. Why would we let that happen? We should write those rules. We should level the playing field.”

o There are critics who claim that T-TIP would lead to a dilution of health, safety and environmental protections. We are interested in doing the opposite. As USTR Mike Froman has recently argued in an article entitled “The Geopolitical Stakes of America’s Trade Policy,” published in Foreign Policy, the United States wants to “launch a race to the top, rather than be subject to a race to the bottom that we cannot win and should not run.”

“In the Asia-Pacific region, for example, over 200 trade deals have been struck in recent years and more are currently under negotiation. Unlike TPP and T-TIP, the vast majority of these agreements make no commitment to protecting labor rights and environmental standards, creating disciplines on state-owned enterprises, and promoting the digital economy.”

o A related geostrategic point is that T-TIP can support efforts to reform European energy policies and create greater energy security.  Once a comprehensive T-TIP agreement is in place, for example, securing authorization to export U.S. Liquefied Natural Gas (LNG) to Europe will be easier.

o By the way, you may have seen the recent news that a Lithuanian LNG importer signed a non-binding agreement to purchase LNG from the first gas export terminal in the U.S., called Sabine Pass, which is expected to send its first cargoes by late 2015.  We were encouraged to see this agreement between Lithuania’s gas company and Cheniere Energy.  This is a positive step in paving the way for U.S. LNG exports to reach Lithuania.