TTIP Gambit

A Free-Trade Sop to Germany

malmstroem gabriel dpa
Cecilia Malmström, the E.U. trade commissioner, and Sigmar Gabriel, the head of Germany's Social Democrats, pulling together on TTIP?
  • Why it matters

    Why it matters

    The new E.U. proposal for a reformed court to settle investor-state disputes could be what makes or breaks the prospects for a U.S.-E.U. free trade deal.

  • Facts

    Facts

    • The European Commission has proposed a more transparent and permanent court to settle disputes between companies and governments, which has been a key stumbling block in the U.S.-E.U. talks.
    • Social Democrats in Germany and Europe have been openly skeptical of a free-trade deal, but broadly welcomed the commission’s new proposal.
    • Both U.S. President Obama and German Chancellor Merkel have said they still want a U.S.-E.U. trade deal to be agreed by the end of this year.
  • Audio

    Audio

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It is being sold as an about-face from Brussels, and hailed as a breakthrough by German policymakers that could breathe new life into the stalled U.S.-E.U. free trade talks.

The European Commission on Wednesday toughened its stance on a key aspect of the free-trade talks with Washington, demanding that any new deal include a transparent, permanent and more restrictive court to settle disputes between transatlantic companies and governments.

On its surface, the offer represents a compromise of sorts for the Europeans, who fear supranational trade courts could undermine local laws and dis-empower voters. Until Wednesday, the E.U. had reacted coolly to U.S. demands for the courts, which would theoretically arbitrate trade disputes between foreign investors and European governments, businesses and regulators.

But the offer only appears to be another small step in what has been a difficult effort to lower customs barriers to create the world’s largest single trade zone, stretching from the California coast through Europe to the doorstep to Russia. In essence, Europe appears ready to accept a court – but it may not be the kind of court U.S. negotiators are seeking.

Some U.S. business groups immediately rejected the latest European offer, saying the reformed courts would do little to protect the interests of foreign investors. The U.S. government has yet to weigh in on the European proposal.

The gambit, coming after months of stalled talks, was seen as a way to bring on board Germany’s Social Democratic party, the junior partner in German Chancellor Angela Merkel’s government who wield an effective veto over the intercontinental agreement.

Germany’s Social Democrats have long been divided on the merits of a U.S.-E.U. free-trade agreement. Sigmar Gabriel, the head of Germany’s SPD, has pushed hard in favor of a deal and taken a big political gamble in the process, challenging the grassroots members of his own party. The new and reformed court process could be just enough to keep his shaky coalition in favor of TTIP alive.

After months of dispute, Germany’s skeptical center-left SPD may now be ready to endorse TTIP. On Thursday, in a statement to Handelsblatt Global Edition, the party took credit for the European Commission’s about-face on the court process.

“The Commission has finally recognized that it can’t be business as usual when it comes to the free-trade discussion. The step towards a fundamental reform the investor-state court process is the right one,” Hubertus Heil, the SPD’s deputy floor leader in the German parliament, said in a statement.

“Social Democrats pressured for a legitimate and transparent process as well as for proper judges and the possibility of appeal. This has apparently prompted some movement,” Mr. Heil added.

The European faction of the Social Democrat party also endorsed the deal, as did the German economy ministry, which is headed by Mr. Gabriel.

The support of German Social Democrats is critical to getting the trade deal passed in Europe, where all 28 of the European Union’s member states will have to approve any final trade pact. Ms. Merkel is unlikely to push for Germany to sign onto the deal if it means risking a break in her own ruling coalition.

“The E.U. Commission in this case deserves some credit for trying to save Germany from itself,” Pieter Cleppe, the head of the Brussels office of Open Europe, a think-tank, told Handelsblatt Global Edition. “This is completely oriented on getting the SPD on board. The SPD had a few concerns with TTIP, and investor-state dispute settlement I think was the most symbolic of all of that.”

The big question that remains: By appeasing Germany’s left wing, will Europe kill the chances for passage of the deal?

The ball is now in Washington’s court – and therein lies the problem. Mr. Cleppe said he expected U.S. policymakers may be tempted to go along with Brussels, but businesses from the United States are expected to lobby strongly against the E.U.’s latest proposal.

One business observer in Brussels said that new language that granted governments a right to regulate was “so broad it renders the commitments to protect investment meaningless.”

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