Road to free trade with Europe is paved with good intentions

As Air Force One prepared to touch down in Germany last weekend for the final leg of president Barack Obama's European tour, thousands of protestors assembled on the streets of Hanover. The focus of their protests was the Transatlantic Trade and Investment Partnership (TTIP), otherwise known as the EU-US trade deal.

Obama’s visit was meant to give a much-needed boost to the trade agreement. Indeed his warning that Britain would move to the back of the trade queue should it exit the European Union as the US focused its attention on the EU-US trade deal dominated coverage of his pre-referendum visit to Britain.

Standing alongside German chancellor Angela Merkel on Sunday, the US president urged both sides to reach agreement on the trade deal this year and not to "let this opportunity close". Merkel pledged to inject the talks with "a new dynamism from the European side".

But despite the attempt to imbue talks on the deal with political momentum, the prospect of reaching agreement on an EU-US trade deal by the end of the year will be challenging.

Just days before Obama's arrival, a survey from German foundation Bertelsmann found that support for the deal had fallen in the US and Germany. Only one in five Germans think TTIP is positive, while one in three are outright opposed. In the US, 15 per cent of people support the deal, compared to 53 per cent two years ago.

The past few years have been challenging for TTIP. Launched in June 2013 during Ireland’s presidency of the Council of the European Union, the proposal for an EU-US trade deal was hailed by the European Commission as a way of boosting economic growth in Europe by up to €120 billion a year.

By getting rid of the remaining trade barriers between the EU and the US, the argument went, businesses and consumers would benefit even more from what is already the largest bilateral trade relationship in the world. In fact, the 2013 launch of TTIP was simply the latest in a series of attempts to forge an EU-US trade deal. Previous initiatives such as the New Transatlantic Agenda in 1995 and the Transatlantic Economic Council in 2007 failed to get off the ground.

Economic slowdown

The latest push for an EU-US trade pact was driven in part by the economic slowdown on both sides of the Atlantic and concerns about the rising economic power of China. An early sign of the difficulties ahead was France’s insistence that its film industry be excluded from the talks, even before the EU had agreed a common negotiating mandate.

The difficulty of meeting the concerns of 28 very different member states meant that negotiations were always going to be tough.

Since 2013, talks have been ongoing between the two sides; the 13th round finished yesterday in New York. As with all trade deals, the negotiations are fiendishly complex as negotiators trawl through the arcane details, from those on agricultural products, to regulatory standards on vehicles to restrictions on aviation ownership and marine transport.

EU ambassador to Washington David O’Sullivan, who negotiated numerous trade deals during his career with the European Commission, says that while unresolved issues remain, it is important not to lose sight of progress.

“In July this year we will only be negotiating for three years. I think we will have made much more progress in three years than we have in other trade deals of this scale. In particular, the last few months have really seen both an acceleration and an intensification in the negotiations,” he says.

“Having said that, I would not underestimate the scale of the end game and the heavy lifting that that will be involved on both sides if we are to conclude within this administration.”

As negotiators work towards having a common text for the next round of negotiations in July, some of the most sensitive issues still remain to be resolved. These include opening up public procurement markets, energy and financial services – particularly financial services regulation – and agriculture.

And one of the most controversial issues – investor state dispute settlement (ISDS) – has still not been resolved. The arcane legal clause, which would give companies the power to sue governments in certain cases, emerged as an unlikely lightning rod for public scepticism towards the deal.

While the European Commission has proposed an alternative to settle disputes between investors and states, which would eventually lead to the establishment of a special investor court, there has been no concrete response yet from the US on the proposal.

O’Sullivan also points out that while the objective is to secure agreement before the end of the current presidential term, the timetable for ratification is much longer.

“It is important to remember that concluding in 2016 with this administration does not mean signing and ratifying, it means reaching the end of the negotiations.

“Even if we do that this year, next year we would then have to proceed with the new US administration – after the agreement of our member states, and the European Parliament agreement – to signature and then to ratification in 2018. Having said that, I think both sides feel there is a certain momentum now which it would be good to capture.”

But while a new momentum may be building in terms of the negotiations, the political climate is challenging.

Free trade

A move against free trade has emerged in the US primary presidential election campaigns, both on the Republican and Democrat sides, as potential presidential candidates respond to an anti-globalisation trend by promising greater protection for US jobs.

Hillary Clinton has already said that she will not support the recently-agreed Transatlantic Pacific Partnership (TPP) between the US and the Asia-Pacific region in its current form.

Similarly, criticism of TTIP is growing in Europe. French prime minister Manuel Valls warned this week that TTIP will not succeed if French standards on health and environment are not preserved. German economy minister and deputy prime minister Sigmar Gabriel also questioned the US approach to the deal earlier this week.

With German and French elections due next year, political leaders in both countries will be wary of prioritising a deal that is facing significant public opposition.

So what is the reason for growing public scepticism towards the deal?

Christian Bluth, who authored the Bertelsmann survey released last week, says the drop in support for TTIP in the US and Austria is down to a combination of factors.

“Initially, the high level of support was because people in general were positive about free trade. In their minds, trade agreements were about lowering tariffs, but TTIP is part of a new generation of trade deals which is less about lowering tariffs – because they are already low – and more about regulatory harmonisation, which has repercussions in areas that are very sensitive to people, such as food safety and environmental standards.”

He also believes that messaging and communication plays a key role.

“On the one hand, we have those opposed to TTIP who can very easily describe all the things that might potentially go wrong with this treaty, whereas, for the proponents on the other hand there is very little they can say to dispel the fears until the content of the contract is known. They can say they have very good intentions, but it is very hard to actually prove that.”

Finding a way to communicate the benefits of an EU-US trade deal will be a challenge for proponents on both sides of the Atlantic in the coming months if TTIP is to become a reality.