TTIP: what to expect from EU/U.S. regulatory convergence? Enhanced Compatibility, maybe.

Transatlantic trade negotiations constitute a very complex dossier requiring high-level political decisions on a multitude of diverse and extremely technical matters which are likely to impact every industry and affect investors’ incentives.

EUUSbridgeShutteDifferently from any previous trade agreement, the principal aim of TTIP is not only to dismantle border restrictions such as tariffs and quotas. Rather, it seeks regulatory convergence. Harmonization and mutual recognition of regulations and standards can lead to a substantial cut in red tape and consequently it can have a significant impact on production costs.

At the beginning of negotiations, expectations were very high; the initial plan was to have the partnership signed by the end of 2014 but the complexity of industry-specific deals and the strong concerns of (mostly European) civil society organisations have slowed down the process. In the end, negotiations are likely to be longer and less comprehensive than it was initially planned.

At the 6th Bruges European Business Conference, the panel on TTIP featuring Mr Denis Redonnet, Head of the Trade Strategy Unit at DG TRADE and Prof Jacques Pelkmans, leading researcher on TTIP at CEPS, among others, concluded that rather than convergence, the partnership is likely to enhance compatibility between the two regulatory systems.

The forthcoming U.S. presidential elections will probably freeze negotiation, as U.S. officials are not likely carry out relevant negotiations in the latest months of the Obama administration.  It follows that, unless an agreement on TTIP is reached by mid-summer 2016, negotiators – maybe new negotiators – will get back to work in 2017.

In addition, it has to be noted that the US has a preference for finalizing the ongoing Trans Pacific Partnership (TPP) before fully engaging in the TTIP negotiations.

 

The Open Questions

The main challenge for EU negotiators will probably be to strike a balance between safeguarding consumers and facilitating access in new markets for EU enterprises. Many questions in this respect are relevant for both business and public opinion. Will regulatory convergence result in increased exports, growth and jobs? Who is more likely to benefit from it? Will SMEs and less-prosperous regions be affected negatively?

One of greatest concerns of European NGOs, which are campaigning against TTIP, relates to European life standards. They fear that opening to free-trade with the US will lead to a situation where big American corporations can access European markets and lower our quality standards, primarily in terms of product security and environmental protection. The European Commission has repeatedly confirmed that there is no intention of giving up on EU quality control; chemicals which are banned in Europe will remain out of the market, GMOs which are not allowed in Europe will not enter our supermarkets. It is very unlikely to imagine DG Trade undermining with an international partnership years of achievement by other DGs on EU environmental law or on health and food safety for instance.

Certain regulations – and preferences – will not be harmonised. Nonetheless, there is still a lot of room to make regulation for business more reasoned and deliberate. Consider for instance an example from the automotive industry,  cars have to pass a safety/crush test before entering the market. The speed for the crush test is regulated and differs in the two sides of the Atlantic. Does this discrepancy reflect different levels of safety? Most likely, it does not. This is probably a case where compatibility can be enhanced and mutual recognition could be applied.

 

More than trade, More than EU/U.S.

The transatlantic partnership will also include new rules on investor rights. In this case as well, a balance has to be found. The introduction of investor-state dispute resolution aims to encourage investment, without weakening local regulations.

The investor-state dispute settlement (ISDS) is, at the moment, one of the most controversial points and the entire success of TTIP negotiations may depend on the ability to agree on this specific issue. The US side is pretty much convinced that TTIP without the inclusion of the ISDS is a no go, whereas from the European side the ISDS has encountered several resistances, not only from the side of NGOs but from the side of institutions as well. The EU Commissioner for Trade Cecilia Malmström has recently given expressed support to the creation of a permanent investment court to replace the ISDS mechanism. Moreover, the European Parliament Trade Committee has signalled its opposition to the ISDS in January and other committees have also expressed their concerns recently.

At the moment, it is difficult to evaluate the impact of an investment partnership on FDI flows and business-related investments. However, it is beyond doubt that a clear set of rules valid in both sides of the Atlantic would constitute an improved framework for investment.

Another important question relates to the spillover effects of the TTIP agreement. There are concerns about the impact of TTIP on non-EU members. Should we expect positive spillovers thanks to the new regulatory framework or will there be substantial trade diversion?

One thing is more likely. If the negotiations are successfully concluded, they will set a new benchmark for international trade agreements and a global reference for international production standards. This means that other economies, for the sake of their own competitiveness, are likely to converge on the same standards that U.S. and EU will put forward. In this respect, the EU has all the incentives to sit at the table and define this international regulatory framework for international trade. We certainly have to avoid the possibility that the United States reach a regulatory agreement with Asian economies (e.g. in the framework of the TPP), and European firms will just have to adapt.

@Rinaldi_David

 

Readings:

Pascal Lamy, “Transatlantic trade negotiators should own up to their ambition”, Financial Times, 27 October 2014.

Jacques Pelkmans, Arjan Lejour, Lorna Schrefler,Federica Mustilli, Jacopo Timini, “The Impact of TTIP: The underlying economic model and comparisons”, CEPS Special Report, No. 93, October 2014

Arjan Lejour, Federica Mustilli, Jacques Pelkmans, Jacopo Timini, “Economic Incentives for Indirect TTIP Spillovers”, CEPS Special Report, No. 94, October 2014

Lucian Cernat, “TPP, TTIP and multilateralism: stepping stones or oceans apart?”, VoxEU.org, 8 November 2013

EurActiv, “Brussels considers replacing ISDS with a public court”,  19 March 2015

 

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s