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Transatlantic Trade and Investment Partnership - Realistic?

Image © europa.eu.

About The Author

Helen Pearson (Guest Contributor)

Helen is a third year law student at Durham, whose interests in the subject include the European Union and criminal law. Outside of her studies she takes part in the Durham University Pro Bono Society’s Schools Outreach program and enjoys volunteer work, helping various organisations. Her hobbies include crafting, yoga, dance and playing various instruments, most notably flute and piano.

Last week was the second round of talks between the European Union and the United States to try to create a Transatlantic Trade and Investment Partnership (TTIP), in an attempt to reduce trade barriers between the two major markets.

Last year, around 500bn euros were traded in goods between the two markets, in addition to 280bn euros traded in services and trillions in finance. The deal would be beneficial to the economies of both markets by removing barriers to trade, thereby increasinggrowth. The deal will make both America and the EU more desirable markets, giving an edge over other major markets such as China and India, despite Mr De Gucht, the EU Trade Commissioner, denying that this is one of the reasons for the deal. According to the report on the economic advantages published by the EU, the deal would create an increase in the EU economy of $120 billion and of $95 billion in the US. In practical terms, the effect of this would give families around €500 more disposable income per year. (Further statistics available here.)

The EU has estimated that the deal will also create two million new jobs. In a speech, Viviane Reding, the Vice-President of the European Commission, provides these two statements to show the reality of this:

In the US, two million jobs would put every Californian back to work and still leave hundreds of thousands of posts to fill. In Europe, two million jobs would eliminate unemployment in Greece and Portugal.

This is clearly a significant benefit to both parties.

But before we get to further benefits, there are several issues facing the Trade agreement, one of which is regulation. Regulation often differs significantly between markets, from the design of the product itself to the labelling necessary for sale. As an example, electrical goods will have to be designed to be able to cope with different power outputs and different safety standards, which could mean that the product would have to be altered in order to sell in the other market, putting the manufacturers at a significant financial disadvantage.

This issue has already been dealt with in the EU by introducing "mutual recognition", whereby the standards in one country are deemed sufficient in purpose for another country. This concept comes from the case Cassis de Dijon, where the European Court held "obstacles to movement within the community resulting from disparities between the national laws relating to the marketing of the products in question must be accepted in so far as those provisions may be recognised as being necessary in order to satisfy mandatory requirements relating in particular to the effectiveness of fiscal supervision, the protection of public health, the fairness of commercial transactions and the defence of the consumer." The court went on to state that if there are no such mandatory requirements, "there is therefore no valid reason why, provided that they have been lawfully produced and marketed in one of the Member States, [the product] should not be introduced into any other Member State." This is not however to say the US and EU can agree a similar doctrine of mutual recognition due to differing public opinions.

One major issue in Europe is genetically modified (GM) food, something which is strictly regulated in the EU, but much more common in the US. Many critics within the EU fear that the reform of these regulations will remove some of the protections available by deregulating public health standards, in order to comply with the relaxed standards in the US. However, US exporters see these standards as an inconvenience which harms potential trade. De Gucht has insisted that the EU restrictions will not be changed in the event of a deal, however it has been suggested that Washington will not support a deal if these restrictions are not removed, this clearly has potential to cause a stalemate in the negotiations.

Since there are disparities in the regulation of products between the two markets, it is unclear what standards could be established. If the least restrictive regulations are the ones that remain, it could mean that untested and unsafe products are able to move around both markets with greater ease, which could potentially harm the consumers, the environment and human health. The officials on both sides of the Atlantic have categorically denied that this is going to be the case, with Ignacio Garcia Bercero, the chief negotiator for the EU, stating that "the negotiations are not about compromising our standards" (Bercero’s speech). The US negotiator Dan Mullaney assured "whatever we do in regulation, we should not be undercutting the levels of protection that we have for the environment and for human health and safety." The most logical approach would seem to be that mutual recognition would be applied unless there are significant health or social factors that should be taken into consideration.

Another barrier this deal seeks to reduce is tax on imported goods, making it cheaper for manufacturers to break into new markets. However importation duties in both the EU and US are already considered low for most goods, making the benefits from this exercise limited. It is a decision neither the US nor the EU can take lightly as reduction of importations duties may damage domestic industries.

There are also concerns over labour laws, protectionism, intellectually property and subsidies as both the EU and the US have very different approached to these issues. One such issue is data-protection, which is essential to e-commerce. In an article by Drobac and others, Jean-Louis Bruguière, a former counter-terrorism judge in France, stated “[f]or Americans data privacy is a matter of consumer law; for Europeans it’s a fundamental right.” The 1995 Data Protection Directive prevents data being passed on to countries that do not have sufficientsafeguards, as decided by the EU. One of these countries is America, although Drobac explains that “the EU provides for a “safe harbor” framework that allows U.S. companies and entities to avoid interruptions in their business dealings with the EU and prosecution by Member State Data Protection Authorities.”                                                                             

Although these issues could have a huge impact on this deal, it is possible for the talks to reach an agreement, but what happens thereafter? Does this deal in effect allow the US to become, a member of the EU? The EU has stated that they will still be free to legislate in any area on which the citizens feel very strongly, but would this be then construed as a ‘trade barrier’ which could be removed under TTIP? There are two options about how to deal with this:

  1. Any changes to EU law that could affect the deal, would need to be ‘approved’ by the US, giving them a more influential voice in the European Union legislature and vice versa.
  2.  Any law introduced because there is ‘strong public feeling’ on recognised topics such as public health, should be recognised by the treaty and not constitute a ‘barrier to trade’.

It is highly unlikely that either party would be willing to restrict their own ability to legislate by having to take into account the other’s rights under the treaty, so it is likely the second option will be introduced. This would mean that any legislation will need to be ‘necessary’ and ‘proportionate’ for it to be allowed, as is the case in the EU internal market already.

Inevitable this deal involves contentious issues for many businesses, which may lead to legal challenge. Within the EU, there is the question of whether the citizens can raise these issues in the national courts under EU law. In a summary of a study  by the Ecologic Institute it was stated “The Court of Justice of the European Union (ECJ) has consistently held that international trade and investment agreements only have direct effect within the EU in very limited circumstances. Thus, in past ECJ cases, private companies have not normally been able to rely on e.g. World Trade Organisation law for invalidating an EU action or claiming damages from the EU. This is likely to apply to TTIP as well.” The full report gives the following reasoning:

In principle, for international legal agreements to have legal effect within the EU legal order, they need to be implemented within the EU, normally by amending or adopting EU secondary legislation. Once such legislation is in place, it has the same legal effect as EU law that is purely domestic in origin... With regard to multilateral trade agreements, the WTO agreements, the ECJ holds the position that they have no direct effect as they are based on negotiations and are characterized by a relative flexibility of their provisions.

The ECJ has found some agreements to be enforceable, but only in limited circumstances:

It is only where the Community has intended to implement a particular obligation assumed in the context of the WTO, or where the Community measure refers expressly to the precise provisions of the WTO agreements, that it is for the Court to review the legality of the Community measures in question in the light of the WTO rules.

- Léon van Parys NV v. Belgisch Interventie- en Resituttiebureau (BIRB)

Citizens from both the EU and the US will need to be afforded the same rights under the treaty to ensure that both parties are fulfilling their obligations correctly. It is suggested that any case law decided in the EU regarding the agreement should therefore be applicable in the US and vice versa. A mechanism for allowing this should be implemented through the agreement.

Most 'major issues' have been discussed or the discussions are planned for the coming weeks, such as energy, chemicals and finance. However, due to the sheer scale and volume of regulation on both sides, it seems almost impossible that all aspects will even be mentioned, let alone discussed.  In Viviane Reding’s speech (as above) she quotes Victor Hugo:

A day will come when we shall see those two immense groups, the United States of America and the United States of Europe, stretching out their hands across the sea, exchanging their products, their arts, their works of genius […] And to bring about that day will not take another 400 years, for we are living in a fast-moving age.

She then goes on to say:

I am very much convinced that it will not take 400 years, not 400 weeks but less than 400 days for our negotiators to stretch out our hands and congratulate each other for a successful conclusion of our Transatlantic Trade and Investment Partnership. This has however to be correctly handled and built on trust the same trust that was shaken following the latest revelations.

This indicates that these talks should be concluded before the end of 2014, which makes the entire deal seem rushed, in an attempt to improve growth in both markets following the economic slump.  However, whether this rush leads to an unworkable solution remains to be seen.

Further Reading

European Commission, Transatlantic Trade and Investment Partnership, The Economic Analysis Explained

Bercero, European Commission, LIVE Second round of negotiations for the Transatlantic Trade and Investment Partnership (TTIP) press conference

Ecologic Institute, European Parliament, Legal Implications of TTIP for the Acquis Communautaire in ENVI Relevant Sectors

European Commission, United States

Reding, European Commission, What's the Deal with the EU-US Free Trade Agreement?

Drobac and others, JDSupra Law News, The Transatlantic Trade and Investment Partnership: The Intersection of the Internet, Digital Commerce and Data-Privacy

De Gucht, European Commission, Transatlantic Trade and Investment Partnership (TTIP) – Solving the Regulatory Puzzle

Cassis de Dijon Case 120/78 Rewe Zentrale v Bundesmonolopverwaltung für Branntwein [1979] ECR 649

ECJ, Judgment of 1 March 2005, Léon van Parys NV v. Belgisch Interventie- en Resituttiebureau (BIRB), C-377/02, para. 40

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Tagged: Commercial Law, European Union, International Law, Trade

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