T-TIP’s Effect on Regional Trade Agreements: Speech at Chatham House

“How Will a Successful Transatlantic Trade and Investment Partnership (T-TIP) Shape Future Regional Trade Agreements?”

Remarks by U.S. Ambassador to the EU Anthony Luzzatto Gardner

Chatham House, London
June 9, 2014

Thank you, Robin, for your kind introduction. It is good to be back at Chatham House; it is here, in the “press-cuttings” room, that I completed much of the research for my MPhil thesis as a graduate student at Balliol College, Oxford. I have returned many times since then, especially in the past six years when I was working around the corner from St. James’s Square.

I started my assignment as U.S. Ambassador to the EU three months ago. In that short period the U.S. Mission to the EU has welcomed President Obama twice, the first time for a U.S.-EU summit and the second time last week for a meeting of the G-7. While issues relating to Russia’s illegal annexation of Crimea and U.S.-EU coordination on sanctions and energy security have kept us busy, the Transatlantic Trade and Investment Partnership Agreement (T-TIP) has been and remains a key priority. As you know, we held the fifth round of talks at the end of May, with the next one scheduled for next month. Although there are challenges, we continue to make steady progress.

The United States and Europe have been partners in shaping the international economic system. For the past seven decades we have worked to create strong rules and institutions to govern international trade, investment, and finance. These rules and institutions laid the groundwork for generations to enjoy global stability and unprecedented prosperity. The United States continues to support the World Trade Organization (WTO) and the multilateral trading system.  We welcomed the recent agreement on trade facilitation at the 9th WTO Ministerial. The agreement is significant because it creates binding commitments among all WTO members to expedite movement, release and clearance of goods and improve cooperation on customs matters – all of which will result in lower trading costs.

Multilateralism versus bilateralism?

Like the EU, however, the United States has pursued many bilateral and regional trade agreements. These agreements proceeded mostly in tandem with multilateral trade agreements during most of the postwar period; as progress in the Doha WTO slowed down, the appeal and number of the former increased. Some commentators have expressed concern that this trend is undermining globalization.

We believe that “Theological debates about the relative merits of ‘multilateralism versus bilateralism’ must…be placed in the context of what has happened in the real world.”  As emerging economies have assumed greater importance in the global trading system and as non-tariff barriers have become more important than tariff barriers as obstacles to trade liberalization, it has been difficult to get consensus within the WTO. Significant external pressure is needed to invigorate the multilateral process. We believe that “A successful effort to resolve disagreements across the Atlantic could become a template for the stalled global trade talks in several difficult areas, from agriculture to cross-border rules on services, investment and regulations.”  T-TIP is a catalyst, not a brake.

Just like the Trans Pacific Partnership Agreement, which is already well advanced, T-TIP can create positive pressures on key countries to liberalize their own trade policies and shift their positions in multilateral trade talks for fear of being left behind. Early indications are that TPP and T-TIP are serving as a magnet for other countries. We hope that these agreements will encourage other countries to embrace the same high standards and principles. If other countries do eventually join, plurilateral or perhaps even multilateral trade liberalization would have been achieved indirectly.

History supports the proposition that regional trade agreements have pushed countries to liberalize trade on a multilateral basis. Examples include the completion of Europe’s common market stimulating the Kennedy Round and the completion of NAFTA resuscitating the Uruguay Round and stimulating the conclusion of the Information Technology Agreement two years later.

While estimating whether trade creation or trade diversion dominate in regional trade agreements is a difficult task because various assumptions have to be made about trade flows in the absence of such agreements, most empirical analyses indicate that trade creation is the norm. Regardless of the theoretical arguments, however, it is clear that regional agreements will continue to be the preferred form of reciprocal liberalization for most countries.

The Final Report of the High Level Working Group on Jobs and Growth that set the road map for the T-TIP negotiations in February last year made clear that both the U.S. and the EU want to conclude a “high-level, ambitious” agreement that goes beyond what they have achieved in prior trade agreements. Such an agreement would not only be deeper and broader than prior regional agreements; it would also set a new standard for multilateral trade liberalization.  As our Trade Representative Mike Froman has said:
“We see T-TIP as an opportunity to raise the standards, to introduce new disciplines and ultimately to strengthen the multilateral trading system…A successful negotiation will create a comprehensive agreement, which…not only enhances our mutual commitment to rules-based trade, but empowers us and enhances our ability to strengthen the rules-based system around the world…”

The intent is for an agreement that is deeper in relation to the standards and level of ambition; and broader because it will address so-called “shared global trade challenges and opportunities”.

The ambition for a T-TIP that is deeper than prior regional trade agreements
So how exactly do we want T-TIP to be “deeper”? Whereas most regional trade agreements do not eliminate all tariffs, the ambition of the United States – which we hope is shared by the European Union – is to eliminate all tariffs on all bilateral trade.

As tariffs have been lowered through successive rounds of trade liberalization, non-tariff “behind the border” barriers to trade have assumed greater importance. The promise of T-TIP can only be realized if they are addressed. Whereas most regional trade agreements do not address such barriers, our ambition in T-TIP is to do so in a meaningful way, while at the same time achieving the levels of health, safety, consumer and environmental protection that each side deems appropriate.

We have tabled an ambitious offer to liberalize services on the basis of a so-called “negative list”, meaning that all services sectors would be covered by the deal’s obligations, except those that are specifically exempted. This includes commitments to open services sectors at the federal and sub-federal levels; at the sub-federal level, the current level of EU market access would be guaranteed and any additional future market opening by the U.S. states would be extended to the EU.

We are also seeking to conclude an ambitious chapter on sanitary and phytosanitary provisions that build upon the key principles of the WTO SPS Agreement, including the requirements that each side’s SPS measures be based on science and on international standards or scientific risk assessments, applied only to the extent necessary to protect human, animal, or plant life or health, and developed in a transparent manner, without undue delay.

We also want -TTIP to be deeper with regard to investment disciplines, including investor state dispute settlement. Both the U.S. and the EU want to achieve the dual objective of providing a high-standard of investment protection while ensuring that legitimate regulatory interests are safeguarded. The US Government conducted extensive consultations before issuing its current model Bilateral Investment Treaty in 2012.

This document includes: provisions to deter frivolous claims; provisions providing arbitral tribunals with detailed guidance on interpretations of the obligations most frequently litigated (relating to “fair and equitable treatment” and expropriations); a statute of limitations provision that limits the time period within which investors can bring claims; provisions that require transparency of arbitral proceedings; and provisions that enable non-parties such as civil society organizations to make their own submissions. We welcome the fact that the European Union is conducting its own consultations on these and similar issues.

The ambition for a T-TIP that is broader than prior regional trade agreements
The High Level Working Group Report referred at length to the “shared global trade challenges and opportunities” – such as the promotion of high levels of protection for the environment and workers. The negotiators were also tasked with the objective of reaching bilateral agreement on globally relevant rules relating to customs and trade facilitation, competition policy; localization barriers to trade; raw materials and energy; small and medium-sized enterprises; and transparency.

In order to achieve a high standard model agreement, T-TIP must also reflect our shared commitment to high level intellectual property protections, including by aligning U.S. and EU positions in multilateral dialogues and encouraging third country IP protection. And it must include disciplines requiring for state-owned companies to operate in a transparent manner that does not distort trade or put our companies at a disadvantage.

We also want to update the global trading system to take into account the promising opportunities of the digital economy. The Department of Commerce has estimated that the value of “digitally-enabled” cross-border trade accounted for over 60 per cent of U.S. service exports in 2011 and about 17 percent of overall U.S. goods and services exports. According to the Internet Association, the internet accounts for 21 percent of GDP growth in advanced economies; its importance is likely to increase.

And yet we are seeing some EU member state governments proposing non-tariff barriers in the form of rules that would, for example, prohibit or restrict companies from transferring data outside the EU or would require companies to put servers within the EU or even within the member states where they do business. It is important that T-TIP promote policies that are friendly to the internet, cloud computing and the free flow of information – not only for our larger companies, but particularly for internet-enabled small businesses that make a critical contribution to growth and innovation.

We also seek to reduce the impact of the differences 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.

There is no “one size fits all” approach; 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; in yet others we may still be able to achieve significant savings by according to each other’s regulators the right to conduct one set of tests, for example, or allow manufacturers to submit a common set of information for product approval (as for example in the pharmaceutical industry). Beyond this, we also are aiming to promote greater compatibility in our future regulations by enshrining the principles of transparency, participation and accountability in the regulatory process. As Mike Froman has argued:

“…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 still in draft form, and state the input from the beginning. We should be able to provide for all stakeholders…from any country…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.”

These are not uniquely American principles. This issue is not about forcing “our way” of regulation on the EU. These principles are respected in many European countries and are part of the EU’s regulatory reform agenda. And I can tell you that not only many EU Member States, including the UK, but also many European businesses, especially small and medium sized ones, want to see these principles respected.

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We started this negotiation because we see the possibilities to increase jobs and growth on both sides of the Atlantic.  Our trade policy, like that of many of our partners, seeks to unlock opportunities for American workers, farmers and ranchers; manufacturers and service providers; entrepreneurs and innovators.

At the same time, we understand that we have responsibility for the system that we helped to create seventy years ago and have supported since the beginning.  By virtue of the fact that the U.S. and EU together account for almost half of world trade, T-TIP may well serve as a template for future regional and global deals. Our opportunity and challenge is to establish a 21st century rulebook, before others do, so that the global trading system continues to reflect our common interests and values.

Thank you.