Tug-o-War

Europe-U.S. Trade Pact Hopes Fade

TTIP U.S. President Barack Obama and German Chancellor Angela Merkel at the G7 Summit in Brussels on June 4, 2014. Source Corbis
Will Europe and Germany be able to bridge the gap on the transatlantic trade treaty TTIP?
  • Why it matters

    Why it matters

    If Europe and the United States fail to resolve their differences over arbitration panels, the disagreement could block adoption of a ground-breaking trans-Atlantic trade agreement.

  • Facts

    Facts

    • Talks between the U.S. and Europe on a trans-Atlantic trade pact have stalled.
    • Proposed arbitration panels to settle trade differences form the biggest stumbling block.
    • Europeans fear U.S. companies could use the panels to rescind European laws.
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    Audio

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Hopes for a ground-breaking trans-Atlantic trade agreement appeared to recede on Wednesday when the new president of the European Commission assigned key negotiations over a thorny issue to a subordinate.

Jean-Claude Juncker, the former Luxembourg prime minister and incoming commission president, assigned a representative to lead discussions on a proposed trans-Atlantic investor-state arbitration panel, which has become a make-or-break litmus test of the pact’s chances of passage.

The United States wants to vest the panel with the power to grant companies financial damages should European governments pass laws that limit a company’s ability to generate profit. Some Europeans oppose the supra-national body, which could undermine local environmental, labor and other laws.

The issue has the potential to scuttle the pact, which seeks to roll back and eliminate European and national customs duties and create the world’s largest contiguous trading zone. Mr. Juncker, a wily Brussels operator, had avoided taking a public position on the issue since gaining office.

Opposition to the trade pact has been loudest within Germany, where skepticism may not end if the investor protections are removed.

On Wednesday, during a speech to the European Parliament, Mr. Juncker again punted on taking a position on the panels, passing up the opportunity to give a new impulse to the trans-Atlantic trade pact negotiations that have divided the fractious 28-country European Union.

Instead, Mr. Juncker, while presenting his new panel of European commissioners, announced that he would assign a Dutch vice-president of the commission, Hans Timmermans, to take the lead on deciding whether Europe would even consider negotiating with the United States on the issue.

An unwillingess to negotiate could scuttle the entire deal, some analysts believe.

Civil society groups and politicians which oppose the trade panel provision had urged Mr. Juncker to clarify his position before the European Parliament voted to accept his panel of appointed commissioners. The pressure had been growing after a report in Dutch newspaper Handelsblad last week suggested Mr. Juncker was prepared to remove the arbitration panels from the trade negotiations. The newspaper, without citing sources, reported that incoming E.U. trade commissioner Cecilia Malmström had threatened to resign.

Some elected officials expressed frustration at the lack of momentum on the pact.

“A clear statement from Mr. Juncker would have been important. This does not allow us to make headway on this explosive question,” Katharina Dröge, a Green Party member of the European Parliament from Germany and spokeswoman on competition issues, told Handelsblatt Global Edition. The Greens oppose including the trade panels in the pact. “It would be a hugely important sign if the E.U. moves here. It would certainly be following the wishes of its citizens.”

 

TTIP Trade Germany USA United States Exports Jobs Top companies Daimler
Source: Companies, GACC

 

The arbitration panels, known as “investor-state-dispute settlement,” or ISDS, allow companies and investors to file for compensation if they believe they have been disadvantaged by government policy. While the panels have been a part of most free-trade agreements over the last 50 years, they have recently fallen out of favor amid allegations they are being misused by multinational companies to block governments from adopting policies that could add costs to businesses.

The United States has insisted that the panels be a part of the “Transatlantic Trade and Investment Partnership,” or TTIP, which they are negotiating with the European Union. Most E.U. governments also continue to back the concept, which was included in recent E.U. trade agreements with Canada and Singapore. The outgoing E.U. trade commissioner, Karel de Gucht, last week warned in an interview with Reuters that there would be “no TTIP without ISDS.”

U.S. business officials have been equally insistent.

“The U.S. business community will not accept investor protection provisions without effective enforcement through ISDS in TTIP,” Peter Chase, the vice president of the U.S. Chamber of Commerce and head of its European office in Brussels, told Handelsblatt Global Edition. “If you take out ISDS, you’re essentially taking investment out of TTIP.”

Mr. Juncker may not have had much choice but to continue hedging and buying time.

 

Source: European Commission, Eurostat
Source: European Commission, Eurostat

 

While he could set the tone by taking a clear stance, Mr. Juncker may not wield the ultimate decision on setting E.U. policy on the controversial issue within the 28-nation bloc.

“If the E.U. is seen as an unreliable party for sudden changes by individuals, this does not help our negotiating position when it comes to other topics that are very important for Europe,” Marietje Schaake, a Dutch member from the liberal wing of the European Parliament, said in an e-mailed statement to Handelsblatt.

Opposition to the trade pact has been loudest within Germany, where skepticism may not end if the investor protections are removed. Relations between the United States and Germany have been at a low since the NSA spying scandal, which has soured discussions on other trans-Atlantic topics.

“It is a particularly German debate. The other E.U. countries are much more keen on TTIP,” said Sebastian Dullien, a senior fellow at the European Council on Foreign Relations.

U.S. supporters have argued that the two sides have an opportunity to set an example for free-trade agreements – and reform the arbitration panel process – for the rest of the world. Lowering barriers to trans-Atlantic business could also lead to much-needed growth in Europe – about 5 percent of gross domestic product in the next decade, according to the Centre for Economic Policy Research in London.

“It’s frustrating from an outsider perspective to see what’s happened in Germany because I would argue Germany has benefitted from international trade more than any other country,” said Garrett Workman, director of the business and economics program at the Atlantic Council, a Washington-based think tank focusing on U.S.-European relations. “It’s a country that has taken advantage of this global system better than others.”

“If we can’t even agree among friends, how are we supposed to show leadership?” Mr. Workman asked.

 

Christopher Cermak, an Austrian-American, grew up in Brussels and worked for six years for news agencies in Washington and Frankfurt. He is an editor at Handelsblatt Global Edition in Berlin. To reach him: cermak@handelsblattglobal.com

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