Overview

The European Union (the EU) and the United States (the US) are currently negotiating a Transatlantic Trade and Investment Partnership (the TTIP), which could lead to the biggest bilateral trade and investment deal ever undertaken. TTIP negotiations were launched on 17 June 2013 and are expected to conclude by the end of 2014.

The TTIP aims to liberalise trade and investment between the US and the EU, creating jobs and growth by delivering better access to each party’s market, achieving greater regulatory compatibility and paving the way for the setting of global standards. These negotiations encompass nearly half of all global economic output. Independent research suggests that the TTIP could boost the EU’s economy by €119 billion, the US’s by €95 billion and the rest of the world’s by €100 billion. Overall, the proposed agreement between the two blocs, together with their increased trade with other partners, would represent a rise of 6% in total EU exports and of 8% in US exports. This would mean an additional €220 billion and €240 billion worth of sales of goods and services for EU- and US-based producers, respectively.1

On 21 January 2014, EU Trade Commissioner Karel De Gucht announced that the Commission will conduct a public consultation on the investment provisions of TTIP. The Commission noted that there was unprecedented public interest in the TTIP negotiations and that concerns had been raised about the balance between the need for regulation to protect people and the environment and fair treatment of investors. The details of the consultation have not yet been published, but the Commission proposes to include specific reference in the TTIP to States’ rights to regulate in the public interest and new and improved rules to deal with disputes. Contrary to some press reports, the proposed consultation will not delay progress on other aspects of the TTIP.

Indeed, on 27 January, the EU Commission published a proposal on how to address financial services regulation in the TTIP. The Commission proposes that the TTIP include a transparent, accountable and rule-based process committing the parties to work together to strengthen financial stability based on timely and consistent implementation of international standards; mutual consultations in advance of any new financial measures and avoiding rules that unduly affect the other party’s jurisdiction; joint examination of existing rules to determine whether they create unnecessary barriers; and a commitment to assessing whether the other jurisdiction’s rules are equivalent in outcomes.

The next and fourth round of TTIP negotiations will take place in Brussels from 10 to 14 March. EU leaders have set the ambitious goal of completing the talks by the end of 2014.

Following completion of negotiations, and based on previous experience, finalizing the text could take at least one year. The TTIP will also require ratification by national parliaments in each of the 28 Member States of the EU before it enters into force.

Background

In June 2013, the European Council provided the European Commission a mandate to launch negotiations with the US. This mandate covers three main elements: (i) market access; (ii) regulatory convergence; and (iii) trade rules to address shared global challenges (e.g., intellectual property rights, and sustainable development).

The first round of negotiations took place in Washington from 8 to 12 July 2013. During this initial round, the parties set out their respective approaches and ambitions in as many as twenty of the areas the TTIP will cover, including agricultural and industrial goods, government procurement, investment, energy and raw materials, regulatory issues, sanitary and phytosanitary measures, services, intellectual property rights, sustainable development, small- and medium-sized enterprises, dispute settlement, competition, customs/trade facilitation, and state-owned enterprises.

The second round of negotiations took place in Brussels in November 2013 and focused mainly on services and investments, energy and raw materials, and regulatory issues. Discussions focused on horizontal rules (technical barriers to trade and regulatory coherence) and a number of specific sectors where regulatory compatibility is specifically targeted (including pharmaceuticals, medical devices, cosmetics, chemicals, textiles, ICT and automobiles). Sanitary and phytosanitary rules, competition policy, small and medium-sized enterprises, and sustainable development were also considered.

Separate bilateral meetings have also been held to discuss procurement issues and regulatory cooperation on financial services.

The third round of TTIP negotiations took place in Washington D.C. between 16 and 20 December 2013. Discussions were held on all the topics expected to be covered in the TTIP.

On 27 January, the Commission launched a special Advisory Group, which includes Commission officials and members of a broad range of business and consumer interest groups, confirming the Commission’s commitment to ensure that a plurality of interests is taken into account during the TTIP talks. The role of the Advisory Group is consultative; it aims at identifying issues of concern for EU industry and consumers and providing feedback to EU negotiators.

The group met informally on 21 January in order to discuss internal procedural aspects and practical details. The first full working session will be held on 25 February 2014.

Reducing regulatory barriers to trade

A key goal of the TTIP is to reduce regulatory barriers to trade. Since tariffs between the EU and US are already low (on average only 4%), the main hurdles to trade are non-tariff barriers, such as regulations and red tape. The Centre for Economic Policy Research has estimated that 80% of overall potential wealth gains from the TTIP will come from cutting costs linked to bureaucracy and increasing coordination between regulators on both sides of the Atlantic.

The EU and the US expect to overcome regulatory barriers in two ways: by improving existing regulations and by improving coordination on future laws.

Existing regulation

With regard to existing regulations, the following tools are available: (i) mutual recognition (by recognising that some regulations have broadly the same effect); (ii) better coordination of procedures (such as safety assessments); and (iii) bringing laws closer to existing international standards.

The suitability of these tools depends on the specificities of each sector. For example, regulatory convergence in the automobile sector could include mutual recognition of car safety regulatory schemes (i.e., requirements in relation to lights, door-locks, brakes, electric windows, etc.). The costs associated with inspections of manufacturing facilities in the pharmaceuticals, medical devices and cosmetics sectors could also be reduced by means of a mutual recognition agreement.

As an example of better coordination under existing laws, regulators could coordinate their safety assessment of chemicals by assessing the same product at the same time and exchanging information. This would save costs both for companies, who might otherwise be subject to duplicative safety tests, and for regulators, who would have to evaluate the results of the tests. Regulators could also agree to fully implement an existing international agreement on classification and labelling of chemicals.

Future regulation

In relation to future laws, cooperation when drafting new rules or updating regulations needs to be enhanced to achieve more compatible rules across the Atlantic. For instance, by consulting each other early in the legislative process, authorities will be better informed about the potential consequences of regulatory decisions for transatlantic trade and investment flows. Electric cars are a good example of this sort of coordination. In this area, regulators have already agreed to set up testing laboratories on both sides of the Atlantic that will work together on safety and performance requirements for electric vehicles and batteries.

The main sectors that would benefit from such changes include sanitary and phyto-sanitary (health and hygiene standards, for example for food products), energy and raw materials, chemicals, automotive, ICT, pharmaceutical and other health sectors, such as medical appliances.

In this context, following the third round of TTIP negotiations, the EU chief negotiator Ignacio Garcia Bercero emphasised that neither side intends to deregulate or to lower their high standards of protection. Mr Bercero seemed to be reacting to the political opposition the TTIP is facing in Europe, especially from NGOs, which claim that the TTIP involves taking a lowest-common-denominator approach to all types of regulatory protection.

The need for regulatory convergence is not limited to trade in goods. As discussed below, the EU has proposed that the TTIP establish a framework for regulatory cooperation in financial services.

Proposed consultation

On January 21, Mr De Gucht announced a public consultation on the TTIP’s investment provisions, following unprecedented public interest in the talks. In early March, the Commission plans to publish a proposed EU text for the investment part of the TTIP, which will include sections on investment protection and on investor-to-state dispute settlement (ISDS). The consultation will be open for comment for three months. The Commission stressed that no other part of the negotiations will be affected by this public consultation and the TTIP negotiations will continue as planned.

The Commission intends to use the TTIP to address problems in current bilateral investment arrangements to make the investment protection system more transparent and impartial and to close legal loopholes. In practice, this would mean referring explicitly to States' right to regulate in the public's interest. It would also see new and improved rules, including a code of conduct to ensure arbitrators in ISDS proceeding are chosen fairly and act impartially and to open up their proceedings to the public.

EU financial services proposal

As detailed in the Commission’s 27 January 2014 paper, the EU proposes to include in the TTIP a new process for coordinating regulation in the financial services sector. The Commission does not propose to address the substance of international standards or their implementation in the TTIP context, though discussions on these subjects may continue in parallel. Rather, the Commission proposes to improve the regulatory process to avoid issues that have arisen in the overhaul of financial services regulation following the financial crisis. For example, the Commission pointed out that the negotiation and implementation of the July 2013 agreement between the EU and the U.S. CFTC on derivatives was “far from optimal.”

The new regulatory procedure would be based on a number of principles:

  • Joint work to ensure timely and consistent implementation of international standards for regulation and supervision.
  • Consultation in advance of any new financial measures that may significantly affect the provision of financial services between the EU and the United States and a commitment by both sides to avoid rules that unduly affect the jurisdiction of the other party.
  • Joint examination of existing rules to examine whether they create unnecessary barriers to trade.
  • A commitment by each party to assess whether the other jurisdiction's rules are equivalent in outcomes.

These general principles would be backed up by specific arrangements for the governance of regulatory cooperation, guidelines on equivalence assessments and commitments to exchange data between regulators.

The Commission stressed that the core element of the EU proposal is the commitment to outcome-based assessments of the equivalence of the parties’ regulatory and supervisory frameworks, potentially leading to mutual reliance on the rules of the other party. The Commission does not envisage binding declarations of equivalence, but rather detailed assessments of the consistency of the implementation of each standard.  Regulators would still have the possibility to take measures to protect financial stability and for prudential reasons. Regulators would, however, need to take account of the potential impact of their rules on the other party, factor in the negative implications for the other party, and explain the choices made if such implications remain in the final rules.

Next steps

The public consultation to be launched in March on investment protection and ISDS is expected to include proposals on how to address these issues in the TTIP. Interested parties will have three months to provide their views.

On 17-18 February, Mr De Gucht will meet his American counterpart Michael Forman in Washington for a high-level meeting to discuss the state of play of the TTIP. This so-called “stocktaking meeting” will officially conclude the first analytical phase of the TTIP negotiations.

The fourth round of negotiations will take place in Brussels on 10-14 March and will focus on the legal texts of the TTIP, launching the second phase of the TTIP talks.

Given the ambitious goals and the large number of sectors affected, negotiations are expected to be burdensome and lengthy. Nevertheless, EU leaders have set the ambitious goal of completing the talks by the end of 2014. Following completion of negotiations, and based on previous experience, the final adoption of the text of the agreement could take at least one year. Once negotiations are concluded, in addition to requiring the green light by the European Parliament and the Council, the TTIP will require ratification by national parliaments in each of the 28 Member States of the EU before it enters into force.