TTIP, BREXIT, and Whistling in the Dark

Photo: Coentor

BRUSSELS—When Presidents Obama, Barroso, and Van Rompuy formally launched negotiations toward an “ambitious and comprehensive” Transatlantic Trade and Investment Partnership (TTIP) in June 2013, they did so in the hope of bringing the United States and the European Union closer together and creating the jobs the two economies and societies needed.

How things have changed.

What should have been a straight-forward task now seems nearly politically impossible. Millions of European citizens have signed a petition against TTIP, concerned that the country often described as a “trusted partner” with “common values” instead seems to have been spying on them, while TTIP is portrayed as a backdoor to “lower” European standards.

And just two weeks ago, the single strongest voice among the EU member states in favor of TTIP, the United Kingdom, voted to leave the EU.

The U.K. referendum could easily have been the death knell of TTIP. After all, looked at just as a trade deal, one of the partners — the EU — was cut down in size by nearly 20 percent in a single stroke. More disconcerting, countries sitting across the negotiating table from the EU no longer know who their counterpart is. With all the political turmoil in London, will the EU be 28 or 27 countries when the deal is closed? What relationship will the U.K. have with the EU after it leaves, and how will that affect EU trade agreements with others?

And yet, after EU Trade Commissioner Cecelia Malmström met U.S. Trade Representative Michael Froman just a few days after the referendum, she strongly reaffirmed the two sides’ intention to conclude the negotiations during President Obama’s term, a sentiment her U.S. counterpart echoed the next day in remarks at a Washington think tank.

Are Ms. Malmström and Mr. Froman whistling in the dark?

They could be.

But maybe not.

Both Malmström and Froman believe they have mandates from their governments to conclude TTIP — mandates they think they can fulfill. The economic rationale for the agreement remains, and the political rationale has arguably grown. And while they understand public concerns about the deal, they believe these can be best answered by showing citizens a text that embodies what both call a “values-based trade policy.”[1]

Getting the deal “done” will not be easy. As the two sides entered the 14^th round of talks in Brussels on July 11, negotiators seemed far apart on agriculture and public procurement, digital trade and services, regulatory cooperation and such rules issues as IPR and “geographic indications” (GIs) for European foods, as well as the treatment of investment and investor-state disputes or ISDS.

These differences can be resolved, though. Even before the TTIP talks were launched, the two sides had a sense of what the likely outcomes would be — and both knew they would not get all they want. “Success” depends on the willingness of Malmström and Froman — who have met almost every month since December — to draw the line and conclude a “political agreement” on the basic text by the end of the year, knowing any deal will be less than perfect, but believing that liberalizing transatlantic trade promotes the ability of their businesses and workers to compete on the global stage. Both sides would likely maintain quotas on some agricultural products (the more the EU protects here the less it will get in GIs); “Buy America” legislation would remain although EU suppliers would get more access; investment rules and procedures will be more transparent and demonstrably fairer. Many specific regulatory agreements would not be finished, but the regulators would continue to work on them during the 18 months it will take to legally review and translate the text.

Any agreement along these lines will be criticized from all sides, but Malmström and Froman could argue the market access deal is the best the two are ever likely to get, no matter how long they negotiate. Leaving counterpart regulators time to finalize individual cooperation agreements between them shows they are independent from the trade negotiators, adding assurances that standards will not be lowered. And if they are able to include strong “sustainable development” provisions, they would show both labor and environmental groups that trade agreements can be used to help raise standards in these areas.

The two sides have slightly different motivations for taking the political heat they would get. For the U.S., President Obama and Mr. Froman are both progressive Democrats, yet many in their party hate the Trans-Pacific Partnership (TPP) deal they concluded in February with 11 other countries of many levels of development. So TPP, while good for growth and progressive on labor and environment, could never be progressive enough. An agreement with the EU — a huge high-income economy with levels of labor and environmental protections many American activists envy — could be something different. Market access for businesses would be offset by improvement in these “progressive” areas, helping balance the Obama Administration’s legacy. Strategically, it would be a demonstration of continued faith in the European Union, when it needs it. If Secretary Clinton wins, she would likely welcome inheriting this; if Mr. Trump wins, the Obama Administration would effectively be daring him not to pursue it.

On the European side, demonstrating the continued capacity to reach a deal with the world’s strongest power in spite of Brexit adversity is itself important. The economic value remains strong. Whoever wins the White House in November will surely be a more difficult partner. And having a text, especially one that meets the progressive “values-based” test, allows EU and member states’ politicians to better answer public concerns, rather than fighting phantoms.

Whether their negotiating teams can, over the next few months, develop a text Malmström and Froman can work from, and whether they will get the support from the White House and Commission and member state leaders to make the compromises necessary to reach a political agreement before Mr. Obama leaves office remains to be seen.

But it can be done. Brexit did not necessarily derail it after all.