The Transatlantic Trade and Investment Partnership. The 21st Century Agreement

Wojciech Bieńkowski Adam K. Prokopowicz Anna Dąbrowska

THE TRANSATLANTIC TRADE AND INVESTMENT PARTNERSHIP The 21st Century Agreement

The Transatlantic Trade and Investment Partnership The 21st Century Agreement

The Transatlantic Trade and Investment Partnership The 21st Century Agreement

Wojciech Bieńkowski Adam K. Prokopowicz Anna Dąbrowska

Warsaw 2015

Reviewers Jan Berg-Andreassen, Ignacy Chrzanowski

Cover design Agnieszka Miłaszewicz

Cataloguing-in-publication Bieńkowski, Wojciech.

The Transatlantic Trade and Investment Partnership: the 21st century agreement / Wojciech Bieńkowski, Adam K. Prokopowicz, Anna Dąbrowska.

Warsaw: Lazarski University Press, 2015, 199 s.

ISBN 978-83-64054-93-8 Keywords: European Union countries – foreign economic relations – United States; United States – foreign economic relations; North Atlantic region – economic integration LC Call Number: HF1532.5.U6 B11 2015 Ark. wyd. 12.5

© Copyright by Lazarski University, Warsaw 2015

ISBN 978-83-64054-93-8

Lazarski University Press Świeradowska Street 43, 02-662 Warszawa tel. 22 54 35 450, 22 54 35 451 e-mail: wydawnictwo@lazarski.edu.pl www.lazarski.edu.pl Desktop publishing, printing and binding by ELIPSA Publishing House ul. Inflancka 15/198, 00-189 Warszawa tel./fax 22 635 03 01, 22 635 17 85 e-mail: elipsa@elipsa.pl, www.elipsa.pl

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Table of Contents List of Figures.................................................................................................................................... 9 List of Tables.................................................................................................................................... 10 Authors............................................................................................................................................. 11 Foreword........................................................................................................................................... 12 CHAPTER 1. TTIP - The 21st century agreement................................................................ 16 1.1. Background..............................................................................................................................16 1.2. Developing TTIP concept .....................................................................................................16 1.2.1. Preliminary, pre-negotiation and negotiation phases.........................................17 1.3. A road to TTIP - historical background..............................................................................18 1.3.1. Preliminary activities................................................................................................18 1.3.2. TTIP pre-negotiating phase.....................................................................................19 1.4. Initial assumptions for TTIP ............................................................................................... 22 1.5. TTIP - economic background............................................................................................... 22 1.5.1. Trade in goods and services ................................................................................... 22 1.5.2. TTIP economic benefits – where they are? ........................................................... 23 1.5.3. TTIP economic impact (EU estimates)....................................................................24 1.5.4. TTIP economic impact (US estimates)................................................................... 26 1.6. TTIP geopolitical impact ...................................................................................................... 26 1.6.1. TTIP discrimination effect....................................................................................... 26 1.6.2. TTIP – risk of discrimination and global trade negotiations ............................ 29 1.6.3. Economic impact on third countries...................................................................... 30 1.7. TTIP - a new kind of a trade agreement............................................................................. 30 1.7.1. Non-typical elements of TTIP.................................................................................. 30 1.7.2. Options for the scope of TTIP..................................................................................31 1.8. References............................................................................................................................... 33 CHAPTER 2. Elements of the TTIP negotiation phase ..................................................... 35 2.1. Mandates for negotiations ................................................................................................... 35 2.1.1. The US mandate for TTIP negotiations ................................................................. 35 2.2. EU Mandate for TTIP Negotiations ................................................................................... 39 2.2.1. Introduction............................................................................................................... 39 2.2.2. European Council initial mandate........................................................................ 40 2.2.3. EU Council directives (2013) ...................................................................................41 2.2.4. EU Parliament Directives (2015)............................................................................. 43

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2.3. Negotiating entities............................................................................................................... 45 2.4. Negotiations............................................................................................................................ 46 2.5. Milestones in TTIP negotiating .......................................................................................... 47 2.6. Negotiating procedures........................................................................................................ 47 2.6.1. Negative or positive list........................................................................................... 49 2.7. Innovation in negotiations ................................................................................................... 49 2.7.1. Innovative negotiations for innovative agreement ............................................. 49 2.7.2. Examples of innovative approach.......................................................................... 50 2.7.3. TTIP – a living agreement.........................................................................................52 2.8. Approving TTIP .....................................................................................................................52 2.8.1. Introduction ...............................................................................................................52 2.8.2. TTIP - a mixed agreement........................................................................................52 2.8.3. US TTIP Congressional approval .......................................................................... 53 2.9. Time factor in TTIP negotiations......................................................................................... 54 2.10. Transparency and public involvement ............................................................................ 55 2.10.1. General issues ......................................................................................................... 55 2.10.2. EU position on transparency................................................................................ 56 2.11. Shaping the TTIP ..................................................................................................................57 2.12. TTIP text structure ...............................................................................................................57 2.12.1. General.......................................................................................................................57 2.12.2. TTIP contents........................................................................................................... 58 2.13. Major areas for TTIP negotiations..................................................................................... 59 2.13.1. Background ............................................................................................................. 59 2.13.2. General – current differences between EU and US........................................... 59 2.13.3. Standards and regulations.................................................................................... 60 2.13.4. Services......................................................................................................................61 2.13.5. ISDS (Investor-to-state dispute settlement)..........................................................62 2.13.6. Food standards........................................................................................................ 64 2.13.7. Public procurement................................................................................................. 65 2.13.8. Air and maritime transport services................................................................... 66 2.13.9. Financial services.....................................................................................................67 2.13.10. SPS measures, food & product safety regulation..............................................67 2.13.11. Public services........................................................................................................ 68 2.14. What is next? – options for further negotiations............................................................ 68 2.15. References.............................................................................................................................. 69 CHAPTER 3. Impact of US and EU economic power and competitiveness on TTIP negotiations and benefits ............................................................................................................. 72 3.1. Introduction ........................................................................................................................... 72 3.2. Methodology assumptions .................................................................................................. 72 3.3. Methods for assessing differences in economic strengths and competitiveness.........74 3.4. Measuring economic strength and competitiveness....................................................... 75 3.4.1. Background................................................................................................................ 75 3.4.2. Macro level analysis..................................................................................................76 3.4.3. Mezzo and micro analysis....................................................................................... 79

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3.4.4. New approach to measuring international competitiveness............................. 80 3.5. US - EU economic strengths comparison ...........................................................................81 3.5.1. Introduction................................................................................................................81 3.5.2. US and EU macro proportions as measured by the magic quadrangle........... 84 3.5.3. Sectoral productivity, innovativeness, science, and education..........................91 3.6. Mezzo and micro level assessment....................................................................................100 3.6.1. Introduction..............................................................................................................100 3.6.2. Mezzo assessment...................................................................................................101 3.6.3. Micro assessment.....................................................................................................102 3.7. US-EU, Assessment of international competitiveness....................................................103 3.8. US-EU, The results of the economic and competitive assessment ...............................108 3.9. References...............................................................................................................................109 CHAPTER 4. Accommodating TTIP induced trade growth - The containerized maritime trade case ................................................................................ 111 4.1. Background ...........................................................................................................................111 4.2. Introduction...........................................................................................................................112 4.3. US - Europe ocean containerized trade.............................................................................112 4.4. US and European ports serving transatlantic routes......................................................114 4.5. Transatlantic corridor in the World containerized trade...............................................114 4.6. Changes in World container markets................................................................................115 4.7. Container vessels...................................................................................................................117 4.8. VLCSs and ULCSs vs. cargo shipment patterns..............................................................118 4.9. TTIP and projected trade growth.......................................................................................119 4.10. Possible vessel deployment to transatlantic routes.......................................................120 4.11. Expansion of ports to accommodate large vessels ........................................................121 4.12. Conclusions......................................................................................................................... 125 4.13. References.............................................................................................................................126 CHAPTER 5. Negotiating TTIP – Transport services case ............................................. 127 5.1. Introduction ..........................................................................................................................127 5.2. Economic impact of transport services and TTIP ...........................................................127 5.3. Transport services in TTIP negotiations...........................................................................129 5.4. EU Parliament position on transport services.................................................................129 5.4.1. International trade in services and transport services......................................129 5.4.2. Structure and main elements of the EU proposal on services.........................130 5.5. Major developments.............................................................................................................133 5.6. Transport Services – EU Parliament Recommendations................................................133 5.6.1. Maritime and aviation transport services........................................................... 134 5.6.2. Access to public services....................................................................................... 134 5.7. Transport issues in EC textual proposals ........................................................................ 134 5.7.1. General comments .................................................................................................. 134 5.7.2. Transport is a difficult subject for negotiations...................................................135

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5.7.3. EU proposed regulations on maritime transport services................................136 5.7.4. EU proposed regulations on air transport services............................................138 5.8. Controversies over transport services in TTIP................................................................139 5.9. US trade unions opposition to TTIP transport sections ................................................140 5.10. EU trade unions position on TTIP transport regulations.............................................143 5.11. EU shipowners position.....................................................................................................145 5.12. Opposition to Jones Act in the U.S. Congress................................................................147 5.13. Opinions supporting air transport exclusion from TTIP.............................................148 5.14. EU business position on transport services in TTIP.....................................................149 5.15. References.............................................................................................................................151 CHAPTER 6. Concluding Remarks ...................................................................................... 153 Appendices..................................................................................................................................... 156 Appendix to Chapter 1..........................................................................................................156 Appendix to Chapter 3..........................................................................................................194

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List of Figures Figure 2.1: TTIP – Planned subjects for negotiations and final document structure......... 58 Figure 3.1: US-EU, GDP 2014, (current US$)...............................................................................81 Figure 3.2: US-EU, GDP per capita, 2014 (PPP, current international $)............................... 82 Figure 3.3: US - EU, Total exports, 2014 (US$ billions)............................................................. 82 Figure 3.4: US and EU, Total imports (US$ billions)................................................................ 83 Figure 3.5: US -EU, Openness to trade, 2013.............................................................................. 83 Figure 3.6: US - EU, Openness to trade per capita, 2013 (US$)............................................... 83 Figure 3.7: Magic Quadrangle..................................................................................................... 84 Figure 3.8: US-EU, GDP annual rates of growth (in percent)................................................. 85 Figure 3.9: US-EU, Annual inflation rate, GDP deflator, 1996-2014 (in percent).................. 86 Figure 3.10: US-EU, Unemployment rate, 1991-2014 (in % of total labor force)...................... 86 Figure 3.11: US-EU, Female participation in labor force, age 15-64, 2005-2012 (in %).......... 87 Figure 3.12: US-EU, Male participation in the labor force, age 15-64, 2005-2012 (in %)........ 88 Figure 3.13: US-EU, Employment per capita, age 15 and more, 1991-2012 (in %).................. 88 Figure 3.14: US-EU, Labor participation rate, 2007..................................................................... 89 Figure 3.15: US current account balance, 2006-2014 (current US$).......................................... 90 Figure 3.16: US Foreign direct investments, net inflows, BoP (current US$)......................... 90 Figure 3.17: US and EU, GDP per person employed, 1991-2012 (constant 1990 PPP US$).....91 Figure 3.18: EU-15 productivity in GDP per hour worked as a percent of the US productivity, 1950-2013............................................................................................................. 92 Figure 3.19: US and EU, Research and development expenditures (% of GDP).................... 92 Figure 3.20: US–EU, R&D expenditures as a % of GDP by sources of funding, 2014 .......... 93 Figure 3.21: US-EU, Number of patent applications, 1963-2013............................................... 94 Figure 3.22: US-EU, Entrepreneurial mindset, 2007 (% of adult population)........................ 95 Figure 3.23: US, EU and Japan, Total public education expenditures per student, 2006 (equivalent US$ converted using PPPs).................................................................. 98 Figure 3.24: University graduates per capita, age group 25-64, 2013 (in %)........................... 99 Figure 3.25: US, EU-15, Japan, Nobel Prize recipients in sciences, 1900-2013 (in %)............100 Figure 3.26: US-EU, Friendliness of business environment by activities, 2008-2015...........103 Figure 4.1: Current & planned water access depth for some US East Coast ports.............124 Figure 4.2: Current & water access depth for some West Coast ports.................................124 Figure 5.1: US exports of transportation services to EU ($ billion)..................................... 128 Figure 5.2: US exports of transportation services to EU ($ billion)......................................129

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LIST OF TABLES

List of Tables Table 1.1: Table 3.1: Table 3.2: Table 3.3: Table 3.4: Table 3.5: Table 3.6:

Developing and Negotiating TTIP - Key events....................................................21 US-EU, GDP Rates of Growth, 1996-2014 (in percent).......................................... 85 Business environment ranking, 2009-2014............................................................. 94 Index of economic freedom, 2015............................................................................ 96 US and EU university rankings, 2015..................................................................... 97 US-EU, Nobel Prize Recipients................................................................................ 99 US-EU, Number and asset value of companies among 100 largest World establishments, 2014...........................................................................................................101 Table 3.7: US –EU, Biggest companies in Top-100 by industry, 2014 (in number and assets value)...................................................................................................................101 Table 3.8: US–EU, Friendliness of business environment for SMEs, 2014.........................102 Table 3.9: US-EU, RCA for high-tech commodities by sectors, 2007-2013..........................107 Table 4.1: Top Trade Routes (TEU shipped) 2013...................................................................116 Table 4.2: Liner Container Services by Trade Routes 2013...................................................116 Table 4.3: Current and future deployment of VLCSs and ULCSs (2015-2019)..................118 Table 4.4: Container vessels – type and technical specifications........................................119 Table 4.5: The third set of Panama Canal locks and international liner shipping industry’s VLCS – APM & CMA CGM..................................................................126 Table 5.1: Selected activities related to transport services in TTIP....................................133 Table A.1.1: EU mandate for negotiating TTIP: The EU Council Directives (A map of key issues)..........................................................................................................................156 Table A.1.2: TTIP - Subjects Addressed During Negotiations (November 30, 2015)...........164 Table A.1.3: TTIP – Major Issues for Negotiating TTIP (November 30, 2015).......................172 Table A.2.1: RCA, European Union, commodity groups, 2007-2013.......................................194 Table A.2.2: (RCA) United States, commodity groups, 2007-2013...........................................196 Table A.2.3: Commodity categories – SITC statistics................................................................198

Authors

Wojciech Bieńkowski: Professor of Economics at Lazarski University, Warsaw, Poland, and Director of the US Economy and Transatlantic Institute. He has studied and lectured in the US (Rochester, NY; Harvard University; The George Mason University), Europe, and Japan. Since 2006, he has been a fellow at the Institute of Applied Economics and the Study in Business Enterprise of The Johns Hopkins University in Baltimore. He has published numerous books and articles in prestigious journals in several countries and languages.

His main research interests and concentrations include the US economy, comparative economics, economic policy, and international competitiveness.

Adam K. Prokopowicz: Professor, economist and lawyer with more than 35 years of university research, teaching, and practical business experience in international economics, finance, law, and management. Served as a professor and director of research institutes at Louisiana State University/The George Washington, University of New Orleans, and other universities in the U.S., Europe, Asia, and Latin America. The President of Institute of Global Innovation, Economics, and Logistics (IGIEL) in the U.S. and EU; Chief International Officer Infratrans Group in the United States. Authored about 80 publications on international economics and finance, legal and institutional aspects of trade development, transport and infrastructure, and innovation. Expert of international finance institutions (The World Bank, EBRD, and others). Adviser to the US federal and state government, and the public and private sector in more than 20 countries. Directed 15 EU funded projects, member of US economic task forces for federal and state governments.

Anna DÄ…browska: An economist, mathematician, and engineer. Extensive experience in international trade, transport and infrastructure sectors, and innovation and business facilitation. Adviser to the private and public sectors in eight countries. Expert in EU functioning, trade and transport policies, and European funds. Author of academic and professional articles in EU and US. Expert of Institute of Global Innovation, Economics, and Logistics (IGIEL). Publisher of Transport and Trade magazine. Lectured at universities in the US and EU. Awarded a title of Ambassador of Women Entrepreneurship. Senior expert at the Transport Systems Catapult (UK).

Foreword

The Transatlantic Trade and Investment Partnership (TTIP) is a trade and investment agreement which has been negotiated between the United States and the European Union since 2013. If successful, this effort would significantly deepen the relationship between two world leading economies and create the world’s largest free trade area. This agreement has a critically important impact on the World economic situation and patterns of international trade and investment. The United States and the European Union account for almost half of global GDP and one-third of the total world trade.

Compared to many other agreements TTIP is very different. TTIP is not a typical preferential trade agreement (PTA). It is an agreement negotiated in a situation where there is already a very deep interconnectedness of the transatlantic economy. It is a complex agreement which attempts to address a variety of complicated trade and investment issues which reflect the current status of the World economy, increasing globalization, and needs for new trade regulation solutions. TTIP is expected to bring significant economic benefits, but to be successful the TTIP negotiators have to tackle a plethora of difficult economic, legal, political, and cultural issues. TTIP involves trade negotiations between truly equal partners in terms of size and level of economic development, and significant economic differences.

On the other hand, TTIP hopes to draw on the comparable economic structures between the United States and the European Union. Unlike conventional trade agreements, TTIP is not primarily about lowering tariffs between the U.S. and EU. These tariffs are already low; they amount to about four percent for EU and three percent for the US. It is estimated that the majority of potential economic gains (up to 80 percent) from TTIP would come from the elimination of contradictory standards, greater regulatory alignment, non-tariff barriers (NTB), and increased access to services and government procurement markets. TTIP is hence not a typical trade agreement.

This book hopes to make additional contributions to analyses and writings about TTIP. Its significance is in showing the importance of this agreement, provi-

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ding information on basic negotiating schemes and challenges. The authors touch upon historic and current issues related to negotiating the TTIP. The discussions and conclusions provided in this publication are based on evaluating multidimensional and multidisciplinary factors, encompassing both theoretical and practical experiences. Background and the road to accomplishing initial TTIP drafts are addressed. Methods, accomplishments and difficulties in completing the final agreement are shown. The geo-political importance of these efforts is shown.

The needs for transparency and public involvement in these talks are addressed.

The book also provides a comprehensive evaluation of the competitive position of the negotiating partners. The authors address various sectoral issues which are important and have not yet been covered sufficiently in the literature.

Chapter 1 concentrates on summarizing long-term efforts and activities which led to the development of the TTIP such as: a) historic transatlantic cooperation of the US and Western Europe in view of the present globalization processes and geopolitical changes which forced both partners to rethink and redefine their current positions, b) the moderate impact of WTO negotiations on the world trade which have encouraged many countries to develop bilateral or regional preferential trade arrangements, c) the projected economic gains for the TTIP partners. This chapter also provides background information for further investigation of several issues critical for the TTIP negotiations. Chapter 2 concentrates on the TTIP negotiations.

It touches upon mandates for negotiations, entities responsible for successful negotiations, roles of the U.S and the EU government entities and stakeholders, negotiation procedures and requirements for agreement approval. Important elements of this chapter are discussions on transparency of the negotiation processes. Also, some elements of public opposition to TTIP have been addressed. The assumed and possible scope of the TTIP agreement is also presented. In Chapter 3 a complex evaluation and comparison of economic power and competitive positions of the US and EU has been presented. This analysis is based on the proven methodology of economic assessment of strengths and competitiveness of the TTIP negotiating partners, and shows factors impacting and allowing to better understand their bargaining positions. This analysis provides also a basis for estimating, based on educated assumptions, possible gains from the implementation of this agreement under the circumstances of unequal economic power and competitive position of the respected partners. The presented conclusions refer to theory notions on what determines such splits as well as recent research and findings on the dispersion of gains between the small and weak and big and more developed partners in trade and business relations. The authors attempted to identify whether these examples and/or findings could be of significant relevance to the US and EU, and their TTIP negotiations.

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Chapter 4 addresses the relationship between possible trade increase and the EU and US capacities to accommodate these increased cargo flows by their transport sectors. As shown in the previous chapters, a major objective of the negotiated TTIP agreement is to create a framework for increasing transatlantic trade and investment. The negotiations are not just a legal and negotiating exercise, but they should stimulate increased cargo flows between the US and EU. Both negotiating partners must remember that to achieve the expected economic benefits they must provide appropriate infrastructure and services to facilitate the TTIP-created additional trade. This chapter projects the magnitude of transatlantic maritime containerized trade growth and analyses conditions needed to accommodate these cargoes. Possible bottlenecks in infrastructure and inadequacies of shipping services are addressed with consideration of the World trends in containerized trade.

This practical case is an example of evaluations which should be undertaken to fully utilize the growth opportunities created by TTIP in this and other areas. It also serves the purpose of showing the practical importance of TTIP. The analysis indicates that negotiations and signing of this agreement are only the first step in realizing the economic benefits from the increased trade and investment opportunities. Many other actions before and after concluding TTIP are needed to insure full realization of the economic benefits. In the case of containerized trade, a number of actions must be planned and implemented in advance such as providing needed levels of ocean transport, efficient vessels deployment, and creating port capacities with accompanying land infrastructure and services. This assessment indicates that signing the TTIP agreement is not the end but the beginning of the processes and activities needed to utilize the economic benefits from this accord.

Chapter 5 concentrates on showing selected issues related to negotiations on services (especially transport services in TTIP). It provides an overview of issues and challenges resulting from opposition to regulating some services in TTIP and frequently contradictory interests and opinions on the inclusion of transport services to this agreement. Chapter 6 provides closing remarks.

We believe that this book is a valuable contribution to the worldwide discussion on TTIP and the world trade and investment development in the 21st century.

We have concentrated on several issues which may represent larger trends in the TTIP negotiations. There is much more to say and analyze. The current work should expand the common knowledge of the TTIP negotiating process; exemplify some of the difficulties and achievements in these negotiations. By touching only the visible “ice-berg� part of the TIIP related issues we hope to raise genuine interest in the issues which can be responded to by additional reading and referencing the vast literature of this subject. We hope that our texts provide a sufficient summary of the current issues in TTIP negotiations and help readers under-

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stand the complexity of these efforts. The book has also been designed to provide additional arguments and stimulate discussion on the future of TTIP. It is widely confirmed by researchers, practitioners, and surprisingly, also by politicians that more education is needed to build social support for this trade and investment initiative. We believe that this book makes such an educational contribution.

I would like to thank the team of co-authors for their enthusiasm and broad-based contributions to this book and especially effective teamwork. Professor Adam K. Prokopowicz, President of Institute of Global Innovation, Economics and Logistics (IGIEL) in the US and EU, and known international expert in trade, transport and infrastructure, and Ms. Anna DÄ…browska, a representative of young generation of experts who effectively supports innovation in international business, transport and logistics, currently within strategic research programs in the United Kingdom, should be commended for their involvement and commitment to this book and the TTIP analyses. Special thanks go Dr. Pawel Olszewski for his assistance in preparing this publication.

Prof. Wojciech Bieńkowski, Ph.D. (Editor) Director, US Economy and Transatlantic Relations Institute Lazarski University, Warsaw, Poland Warsaw, December 2015

CHAPTER 1

TTIP - The 21st century agreement

1.1. Background The Transatlantic Trade and Investment Partnership (TTIP) is a trade and investment agreement currently being negotiated between the United States and the European Union. If successful, this effort would significantly deepen the relationship between the world’s two leading economies and create the world’s largest free trade area.

1.2. Developing TTIP concept The TTIP negotiations are far from being the first attempt to establish a Transatlantic Market Place. Not many experts remember that the acronym NAFTA was forged in the 1960s to designate the North Atlantic Free Trade Agreement among the US, Canada, the UK and the then European Community. Some authors remind us that in relation to the Transatlantic Market Place concept there are two very important issues which delineate the nature and process of the current TTIP activities and their concept. They argue that first, since their origin, the US-EU trade negotiations have had a geo-political dimension. It is the desire to shape world rules and governance, sometimes as a means of challenging other super-powers. For example, the 1960s NAFTA initiative targeted the Soviet Union (Messerlin 2015).

Secondly, TTIP is the last mega-preferential trade agreement (mega-PTA1) to be launched by the world’s largest economies. It follows the Trans-Pacific Partnership (TPP), the Economic Cooperation Framework Agreement between mainland China and Taiwan, the China-Japan-Korea, the Regional Cooperative Economic Part1

PTA – Preferential Trade Agreement is a trade pact between countries that reduces tariffs for certain products to the countries who sign it. While the tariffs are not necessarily eliminated, they are lower than for the countries which are not a party to the agreement. It is a form of economic integration. See: http://www.businessdictionary.com/definition/Preferential-Trade-Agreement-PTA. html#ixzz3uCXVTqQ0

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nership (RCEP) in East Asia, the Japan-EU Free Trade Agreement (Messerlin 2015), (CEPS Special Report (2015).

1.2.1.  Preliminary, pre-negotiation and negotiation phases The majority of current research concentrates on negotiating TTIP and selected subjects which are negotiated. It is important to review the activities which preceded the negotiations and the present debate on TTIP to properly understand and interpret various facets of these negotiations, their scope and the difficulties faced by the negotiating partners. This provides important insights to the TTIP logic and philosophy. Many activities have been completed prior to starting the official TTIP negotiations by the US and EU representatives. They can be divided in three stages: a) preliminary activities which created a historical background and served to develop the general ideas on transatlantic trade and investment cooperation. They reflect a natural evolution in the thinking of Atlantic trade. This process has resulted in exposing a number of important factors such as globalization, emerging markets, creation of EU as we know it, economic crises, changes in the World competitiveness of US and environment problems; b) pre-negotiating actions which were carried out to prepare the environment for starting the negotiations of this agreement, and finally; c) negotiating phase which involves various forms of activities leading to the development of intermediate and final drafts of the agreement together with all related activities. The negotiating phase starts from the first round of negotiations.

The concept of transatlantic trade and investment cooperation has changed many times since the beginning of preliminary activities. It is also changing during the negotiation process. This is an open and active process. There are some common ideas which underlie the concept of this agreement; however, many elements are a subject of further discussions, reviews and updates. Although many elements of the agreement have already been agreed upon, there still are many which must be addresses by the negotiators. At this point it is even difficult to define what will be a final scope of this agreement. Some researchers, stakeholders and sources have doubts if this agreement will be at all concluded and signed during this round of talks. Based on a review of the World tendencies and accounting for globalization of the World economy, considering that many trade agreements have recently been concluded, it seems that TTIP will sooner or later be concluded and approved. Such is the long-term interest of the negotiating parties and the TTIP stakeholders.

Several sources provide a historical background for the development of the TTIP idea and negotiations. This analysis summarizes major developments which

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provide to the assessment of the current situation as of December 2015, and create a background for assessment of selected issues addressed in this publication.

The European Commission has recently created a comprehensive website for TTIP which provides a large body of materials, textual proposals, and historical data.

1.3.  A road to TTIP - historical background 1.3.1.  Preliminary activities The US and European countries have developed various forms of economic cooperation after World War II. The formation of these institutions and cooperative measures was intended to stabilize the global economy. The following paragraphs describe milestones which preceded and created a background for TTIP negotiations. They summarize conclusions and information provided in a number of sources (for example: Workman, Smith 2015) In 1944, at the Bretton Woods (N.H.) meeting, the Allied powers created the International Monetary Fund and the World Bank, and signed the General Agreement on Tariffs and Trade (GATT), the precursor to today’s WTO. In 1961, the US and European allies were pivotal in the creation of the Organization for Economic Cooperation and Development (OECD). The following critical developments were the creation of International Energy Agency (IEA) in the mid-1970s, the G5 in 1975 and WTO in 1995.

As correctly indicated in literature, these institutions created a system of the World trade and economic relations development, and addressed economic challenges. They contributed to reducing barriers to trade; promoting economic and financial stability; and providing development assistance. They also effectively addressed the major strategic economic challenges of the second half of the 20th century such as the transition from colonialism to market economies; the end of fixed exchange rates, and the liberalization and globalization of trade. These organizations also provided for an ongoing productive dialogue among key players and built a framework for the World economic order. Today this order is widely accepted. For example, as new countries declared independence or moved away from centrally planned economies, they sought to join the WTO, the IMF, and other institutions as an indication of their new status, underlining the importance and success of these organizations.

At the turn of the 21th century the economic situation has changed. Globalization changed world trade flows. The World economic growth became more dependent on the increased importance of capital flows and investment. The role of the private sector in development increased, and the competition for energy supplies

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has intensified. At the same time, financial and trade imbalances created risks to stable international growth, and economic gaps between various countries and regions widened. Trade, financial institutions and mechanisms had to change in order to follow the new economic order (Burwell 2007).

In 1995, in Madrid, the US and EU representatives adopted the New Transatlantic Agenda (NTA). The agenda was designed to strengthen transatlantic economic relations. The NTA’s primary accomplishment was establishing more frequent and structured dialogues between the two regions. In 1998, the Transatlantic Economic Partnership (TEP) was created in London. It sought to improve cooperation between the US and EU within the context of NTA. This initiative, however, was not very successful and created limited results. The next development was the Guidelines for Regulatory Cooperation and Transparency created after the 2002 summit in Washington D.C. The Guidelines were established to improve the regulatory policymaking dialogue on both sides of the Atlantic to ensure that each other’s standards were more streamlined. At a 2004 summit in Shannon (Ireland), the EU and the US outlined the Strategy for Strengthening EU-US Economic Partnership, which aimed to engage the public on transatlantic trade issues and strengthen the American position in favor of removing barriers between the US and EU. The summit called on political leaders to continue discussions to determine the feasibility of a transatlantic free trade agreement. Consequently, the EU and US in 2005 released a declaration to begin an Initiative to Enhance Transatlantic Economic Integration and Growth. The initiative was designed to expand economic opportunities and promote prosperity.

In 2007, an agreement that established the Transatlantic Economic Council (TEC) was signed to oversee and encourage economic policy coordination between the United States and European Union. It was signed by the U.S. President G.W. Bush, EC President J.M. Barroso, and German Chancellor A. Merkel. TEC concentrated on regulation, intellectual property rights, innovation and technology, secure trade, and investment (Winikoff 2013). Unfortunately, TEC was not successful in overcoming the US-EU arguments over several trade issues such as hormone-treated beef, chlorinated chicken, and subsidies for Boeing and Airbus (Workman, Smith 2013). Both partners understood that a new dialog mechanism is needed to respond to current trade issues.

1.3.2. TTIP pre-negotiating phase In November 2011, a High-Level Working Group on Jobs and Growth (HLWG) was established under the leadership of U.S, Trade Representative Ron Kirk and EU Trade Commissioner Karel de Gucht. The HLWG was given the task: a) to exa-

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mine both tariff and non-tariff barriers to trade, b) to assess the potential for improving the compatibility of regulation standards, and c) to judge the feasibility of a comprehensive trade and investment agreement between the US and EU. The HLWG was also tasked with a scoping exercise into measures and sectors that could strengthen and optimize the transatlantic economy in order to create new jobs and economic growth. As the world’s largest trading partners (50% of world GDP) with bilateral trade flows representing 33% of world trade, the benefits were expected to be huge. It was also expected that it could alleviate the burdens of the financial and economic crisis that hit both the EU and the US at the beginning of the 21st century. Moreover, in a rapidly changing world with emerging economies displaying a more active role in global trade and politics, a deepened transatlantic partnership could also bring strategic and robust benefits. The HLWG issued an interim report of the scoping exercise, reporting good progress, and recommended that the transatlantic political leaders should launch formal negotiations as soon as possible. A number of preparations for negotiations followed (TTIP FAQ 2015).

On February 13th, 2013, during the State of the Union address, President Obama politically endorsed the US-EU talks initiative. He announced that his administration would begin formal trade negotiations with the EU. On March 20th, 2013, the U.S. Administration formally notified the U.S. Congress of its intent to start negotiations with the EU on a trade and investment agreement, kicking off a 90-day consultation allowing formal negotiations to start upon its expiry (TTIP FAQ 2015).

Simultaneously, on February 13th, 2013, European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso initiated their own dialogue with the European Parliament. On April 25, 2013, the International Trade Committee of the European Parliament, voted to begin formal talks on the TTIP by 23 votes to 5.

On June 14th, 2013 the 27 EU Trade Ministers (Foreign Affairs Council) gave the European Commission a broad mandate to negotiate on their behalf with the Americans. The European Parliament has adopted two political resolutions to confirm the final mandate. On 17 June 2013, at the G8 summit at Lough Erne (Northern Ireland), TTIP negotiations were politically confirmed and launched. The presidents of the United States, European Commission and European Council, and the prime minister of the United Kingdom, committed themselves to removing barriers to trade and investment between the US and the EU. It is commonly agreed that the pre-negotiation phase was concluded with the granting of a negotiating mandate by the European Member States to the European Commission, and by the expiration of the 90-day consultation period of the US Congress after the Obama administration formally notified it of its intent to engage in trade negotiations with the EU. This period expired on June 18, 2013 (TTIP FAQ 2015).

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Objectives and results. In brief, this phase led to preparing and providing mandates for negotiating TTIP for US and EU and initial assumptions of both negotiating partners and negotiating mandates. The negotiations phase is addressed in the following chapter of this publication. Detailed information on issues addressed during rounds of negotiations is provided in appendices.

Table 1.1: Date

Developing and Negotiating TTIP - Key events Preliminary Developments

Pre Negotiations Phase February 2013 EU-commissioned ‘ad-hoc high-level expert group’ published a paper, highlighting the need for a free-trade area between the European Union and the United States (taken up by US President Obama and Commission President Barroso) March 12, 2013 Publication of a Commission Staff Working Document, Impact Assessment Report On The Future Of EU-US Trade Relations; Accompanying The Document; Recommendation For A Council Decision Authorizing The Opening Of Negotiations On A Comprehensive Trade And Investment Agreement, Called The Transatlantic Trade And Investment Partnership, Between The European Union And The United States Of America Mach 20, 2013 The US President sent a notification letter on negotiating TTIP to the United States Congress May 23, 2013 European Parliament voted a resolution for the exclusion of Culture and Audio-visual Services from the negotiation mandate June 14, 2013 Council agrees on the exclusion of Audio-visual Services from the mandate in its directives for the negotiation of the TTIP June 14, 2013 The Council of the European Union adopted a mandate for the European Commission to negotiate a comprehensive trade and investment agreement with the United States (The Transatlantic Trade and Investment Partnership - TTIP) Negotiation Phase July 8-11, 2013 1st round of negotiations (Washington DC) July 16, 2013 The European Commission hosts an “ad hoc meeting” to update on the Transatlantic and Investment Partnership – First Negotiation Round July 18, 2013 A hearing on the US President’s Trade Policy Agenda is scheduled by the House Ways and Means Committee, this hearing gave more info on preparations for Trade Promotion Authority (TPA).

September 4, 2013 The US Monitoring Group of the International Trade Committee of the European Parliament met with the European Commission negotiators to reflect on the first negotiation round that took place from 8-11 July in Washington DC. This meeting was not open for the public.

September 26, 2013 The U.S. Congress International Trade Committee (US ITC) was expected to deliver its impact assessments November 11-15, 2013 2nd round of negotiations (Brussels) December 16-20, 2013 3rd of negotiations (Washington DC) January 2014 The US ITC investigated and produced a report on trade-related barriers that US small-and-medium enterprises perceive as disproportionally affecting their exports to the EU. March 10-14, 2014 4th round of negotiations (Brussels) May 19-23, 2014 5th round of negotiations (Arlington, Virginia)

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July 2014 July 14-18, 2014 October 2014 September 29 - October 3, 2014 November 2014 February 2-6, 2015 April 20-24, 2015 July 8, 2015

July 12, 2015 July 13-17, 2015 October 19-23, 2015

Preliminary Developments Publication of the EU position papers 6th round of negotiations (Brussels) Publication of the EU negotiations mandate 7th round of negotiations (Chevy Chase, Maryland) Announcement by the EU Commission of further transparency and access to documents for MEPs and the Council 8th round of negotiations (Brussels) 9th round of negotiations (Washington DC) European Parliament – Recommendations to EC on TTIP negotiations (Adoption by the European Parliament of the a resolution containing EP’s recommendations to the European Commission on the negotiations for the TTIP (European Parliament resolution of 8 July 2015 containing the European Parliament’s recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP) (2014/2228(INI))) TTIP Trade in Services Investment and E-commerce EU textual proposal 10th round of negotiations (Brussels) 11th round of negotiations (Miami)

Note: As of December 1, 2015 Source: A little guide through TTIP negotiations, Culture Action Europe, Available at http://cultureactioneurope.org/news/updates-on-ttip-negotiation-process/, (Accessed on November 30, 2015);

1.4. Initial assumptions for TTIP It is crucial to understand initial assumptions, goals and objectives of the negotiating partners in order to properly understand the negotiating process and progress in the TTIP development. They define a path for further activities and negotiations of the final agreement. The US and EU have implemented different patterns and approach to transparency. Since 2014, the European Commission provides public access to many documents. The US reveals much less information about its textual proposals, opinions, studies and negotiating points. The following provides an assessment of major points of assumptions, goals and objectives which negotiating partners set up prior to starting negotiations.

1.5. TTIP - economic background 1.5.1. Trade in goods and services Together, EU and the United States account for almost half of global GDP and one-third of total world trade (Directives 2013). Total trade in goods. Total bilateral trade in goods between the EU and US in 2011 amounted to €455 billion, with

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a positive balance for the EU of just over €72 billion. The US was the EU’s third largest supplier, selling it €192 billion of goods (representing around 11% of total EU imports) and the EU’s main export market, buying €264 billion of EU goods (representing around 17% of total EU exports). Top sectors for trade in goods for the EU were machinery and transport equipment (some €71 billion of imports and €104 billion of exports), followed by chemicals (roughly €41 billion of imports and €62 billion of exports). Total trade in services. In 2011, trade in commercial services was worth €282.3 billion (according to the latest available figures from Eurostat) with a positive balance for the EU of €5.5 billion. The US was the EU’s top partner for trade in commercial services, with its imports reaching €138.4 billion (around 29% of total EU imports) and its exports €143.9 billion (around 24% of total EU exports). Total trade in goods and services. In total, the commercial exchanges of goods and services across the Atlantic average almost €2 billion per day. Jobs. As estimated by Center for Economic Policy Research (CEPR), in 2008 around 5 million jobs across the EU were supported by exports of goods and services to the US market. Investment. In 2011, US companies invested around €150 billion in the EU and EU firms some €123 billion in the US. In the same year, the US stock of investments in the EU reached over €1.3 trillion and the total of EU stock of investments in US over €1.4 trillion.

EU indicated that prior to starting the negotiations, the EU-US economic relationships supported a combined 13 million jobs, nearly $3.9 trillion in two-way foreign direct investment, 45 percent of global GDP, and over a third of global trade. The European Union remains by far the largest destination for US exports and is also the largest source of imports into the United States, and bilateral trade in goods and services passed the $1 trillion mark in 2012. In fact, more than $2 billion worth of goods alone crosses the Atlantic each day (TTIP and Fifty States 2013).

1.5.2. TTIP economic benefits – where they are?

It is not easy to precisely estimate economic benefits from TTIP. These benefits are a matter of debate. First, we do not know yet what will be the final scope of the agreement, second, impact estimates are made based on econometric models and their results may differ depending on data sources and assumptions made. This contention was supported by the Committee of International Trade (INTA) of the European Parliament. It stated in their report, that the impact is very difficult to assess while the negotiations are ongoing and since the studies show contradictory results (A little guide 2015).

There are a number of organizations that oppose TTIP. One of their major arguments is that this trade agreement will not produce sufficient results and may

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distort international economic relations. For example, the Austrian Foundation for Development Research study commissioned by the European United Left/Nordic Green Left group in the European Parliament found that TTIP would bring limited economic gains but considerable downside risks. It argued that other assessments of TTIP’s economic impact were too optimistic about the extent to which non-tariff barriers might be reduced and that the alignment of regulatory standards, in areas such as consumer safety, environmental protection and public health, could have significant social costs (Assessing 2014). There are other organizations and groups presenting similar arguments. At this stage of the TTIP negotiations it is difficult to establish if these arguments are true. They should be addressed later when the scope and the instruments of this trade agreement are defined in more detail. For further assessment, we assumed that potential benefits identified so far by the US and EU justify further negotiations of TTIP. The TTIP negotiations concern duties and non-tariff barriers to trade and investment. As already stated, customs duties in transatlantic trade are low, but given the massive trade flows even small reductions can create enormous economic effects.

1.5.3. TTIP economic impact (EU estimates) TTIP is expected to significantly strengthen both the European and American economies. There are various estimates of the economic impact of TTIP. Both negotiating partners assessed possible impact of this agreement. The European Union carried out an impact assessment of the economic, social, and environmental impacts at varying degrees of trade liberalization with the US. In every scenario considered in this report, the overall outcome of the TTIP was positive. The assessment, commissioned by the Centre for Economic Policy Research (CEPR), suggested that an ambitious and comprehensive TTIP could generate 119 billion euros in economic gains for the EU as a whole every year, which is equivalent to an additional €545 per family of four. (Questions and answers 2013). A comprehensive TTIP would also structurally increase salaries for both skilled and unskilled workers by 0.5% on average. Aside from wages, the agreement would also stimulate the growth of jobs due to the increased output in most industry sectors (TTIP FAQ 2015). According to an impact assessment by the Commission, a comprehensive trade and investment agreement could increase EU GDP by between 0.27 % and 0.48 %, and EU gross national income by up to € 86 billion (Directives 2013).

Literature sources indicate that TTIP could be seen as a sort of growth package without using tax payers’ money. European companies are particularly efficient in the areas of services. Better access to the US market, for example in the area of ma-

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nagement consultancy or environmental services, would be good news for them.

That is why the EU’s negotiators are using the trade talks to try to open up the US services market to EU firms. EU countries are major investors in the US. Their combined investments in the US top €1.6 trillion, making the EU the biggest investor in the US. Thus, EU countries have a major interest in ensuring that their investments abroad receive the best possible protection – as is the aim in the TTIP. The planned trade agreement will not just benefit big firms; it will bring many advantages for small and medium-sized companies too. The EU and the US have already agreed to include specific measures in the agreement so that smaller firms will be able to benefit from it in the same way as larger ones. The advantages will not just be limited to Europe. The agreement will also have effects on the global economy.

Increased trade between the EU and the US will raise demand for raw materials, components and inputs produced in other countries. In total, the global economy is forecast to grow by an extra €100 billion as a result of the increased transatlantic trade. The harmonizing of standards between the EU and the US could provide the basis for global standards. This would mean companies would only have to produce goods to a single global standard thereby making trade easier and cheaper (TTIP explained 2015).

The European Union sources indicate that the US and EU regulations, which differ slightly but at the same time protect consumers to the same degree, add the equivalent of 10-20% in compliance costs to the price of goods. This expense is usually paid by consumers. By reducing these unnecessary regulations, TTIP would eliminate these costs and transatlantic tariffs. Consequently, if the objectives of TTIP are accomplished the US and EU, by integrating their markets, would obtain significant benefits. These benefits would be provided to businesses and consumers. The planned trade agreement will benefit both big and small firms.

It is expected that TTIP may bring many advantages for small and medium-sized companies too. The EU and US have already agreed to include specific measures in the agreement so that smaller firms will be able to benefit in the same way as larger ones.

TTIP will also have wider effects on the global economy. It is estimated that increased trade between the EU and the US will raise demand for raw materials, components and inputs produced in other countries. In total, as indicated by the European Commission, the global economy is forecast to grow by an extra €100 billion as a result of the increase in transatlantic trade. Another important advantage would be in the area of standards. The EC experts assume that harmonizing of standards between the EU and the US could provide a stimulus and a basis for developing more global standards. This would mean that companies would only have to produce goods to a single global standard. This could result is significant

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cost reductions and further stimulatio0n of international trade (TTIP explained 2015).

1.5.4. TTIP economic impact (US estimates) The Atlantic Council study addressed the same issue from the point of view of the United States. It indicated that the gains for US would be impressive. The Atlantic Council experts stated that all fifty US states would increase their exports to the European Union and add jobs related to TTIP, with a nationwide net employment gain of approximately 750,000 jobs due to increased trade alone. Further, American households would gain approximately $865 annually. (TTIP and the Fifty States 2013). The study estimated that these gains are due to two factors: a) higher wages associated with export-oriented jobs, and b) additional disposable income available to families across the economic spectrum due to the lower costs of imports from Europe.

1.6. TTIP geopolitical impact 1.6.1. TTIP discrimination effect Many authors remind that any PTA is doomed to generate discrimination against non-PTA members. This discrimination is costly for efficient non-PTA companies that are excluded from the PTA markets, and for the PTA consumers who buy goods produced in the PTA which happens to be less expensive than those produced in the rest of the world only because efficient foreign producers still have to face trade barriers on their products. And these goods could be cheaper for the PTA consumers! There are four specific issues that could be raised with regard to TTIP in the international and geopolitical impact areas: a) the likelihood and magnitude of discriminatory impacts, b) the case for compensating spill-over effects, c) preference erosion of previous EU and US PTAs, and finally, d) the beneficial impact of mutual equivalence in the worldwide context (Messerlin, 2015).

It was observed that TTIP is the PTA between the current two largest world economies. It may thus be a source of discriminations on an unprecedented scale (Akman, Evenett, and Low 2015). These researchers stated that the risks and costs of discrimination depend on three key elements: a) the higher the initial (pre-TTIP) most favored nation (MFN) protection of the TTIP countries, b) the deeper the intra-TTIP liberalization, and c) the stronger the intra-TTIP emulation long-term dynamics (i.e., the capacity to deepen further the transatlantic market access as time flows) are; the higher the risks and magnitude of discriminatory impacts on non-TTIP economies. As an example, that deep TTIP provisions in agricultural

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products would open wide the highly protected EU markets to US products to the detriment of similar goods produced in the rest of the world at a much lower cost, since the EU MFN barriers are high in agricultural products. Consequently, it is often stated that the risks of discrimination are much lower in services than in goods because it is difficult to open markets in services in a discriminatory way.

Based on observations of the EU member-states barriers, some researchers also reason and support the opposite view - the remaining range and magnitude of intra-EUMS barriers in services suggests strong possibilities of substantial discriminatory protection. This is a very useful observation for TTIP negotiators and advisers addressing possible international impacts of TTIP. On the other hand, the issue of discrimination in trade ad services in the global economy environment may be interpreted in various ways. But this is beyond the scope of this book.

Spill-over effects. The potential discriminatory impact of TTIP on non-TTIP economies could be mitigated by the fact that dismantling barriers between US and EU markets would generate positive spill-over effects for the rest of the world.

Two kinds of spill-over effects are most frequently addressed: a) direct spill-over effects would occur if post-TTIP regulations in the US and the EU would decrease trade costs, not only among the US and the EU services providers, but also those of the third countries exporting to the US and to the EU, b) indirect spill-over effects would occur if third countries adopted better regulations that TTIP partners would adopt. But to be very honest (and Akman, Evenett, Low and Messerlin are honest) these spill-over effects are mere possibilities, and their likelihood and magnitude are unknown. From a practical point of view we witness intensive fight among many countries and blocks for a larger piece of the global trade and services. The historians would say – nothing new.

Preferences erosion. Various authors argue that the non-TTIP economies are not equal with respect to the TTIP discriminatory potential. Twelve non-TTIP countries with a PTA, with the US and/or the EU already in place, have a kind of insurance scheme against TTIP discriminatory impact. Messerin also stated that “of course, there are the options of ‘opening’ TTIP to other countries on an ex post basis and the option to design it as an open agreement. Such options will substantially reduce the TTIP’s discriminatory impact and the risks of preference erosion. Despite their intellectual attraction, it is fair to say that such options have rarely been used in the past and, more decisively, that they do not fit today’s mood in trade matters. That said, the mutual equivalent approach can easily be adapted to such options on a case by case basis”. But again, try to explain that to profit hungry enterprises and entrepreneurs.

It is argued that the deeper the existing PTAs with the EU and/or the US, the better the insurance scheme of the non-TTIP country. It is proven that the preferences that the non-TTIP countries have enjoyed under their PTAs with the EU or the

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US will be eroded or eliminated by TTIP to an extent that depends on the TTIP’s own depth For these non-TTIP countries, such a turn of events may be painful for their trade companies and service providers that will face increased competition from additional TTIP services providers. On the other hand, if viewed from a world welfare perspective, this evolution should be seen as positive. One must remember that such preference erosions are systemic, inevitable and indeed desirable down-side effect of PTAs in a world, subject to the permanent forces of further liberalization (Messerlin 2015). Nothing more, nothing less.

Mutual equivalence and world welfare: from ‘norm setting’ to ‘norm attracting’. Some trade researchers have also noted that the impact of TTIP on the rest of the world’s economies depends on the basic philosophy of TTIP negotiations. TTIP negotiators have often made reference to TTIP as a ‘norm-setting’ endeavor for the rest of the world, particularly in the context of regulations. This notion conveys a sense of TTIP as a duopoly (shrinking in relative terms) of economies trying to impose their regulations on the rest of the world while there is still time. Some researchers argue that this is not a very convincing approach, for two reasons. From an international relations perspective, it is hard to believe that the large non-TTIP economies will accept such a set of imposed regulations. From an economic perspective, such an approach increases the risks and magnitude of TTIP discriminatory impact because the EU and the US, being very similar economies and societies, inevitably have intrinsic difficulties taking into account the wide range of regulatory capacities and objectives in the rest of the world. Based on this reasoning they state that the choice of the techniques used for talks on TTIP plays a key role. Also they indicate that that “harmonization and mutual recognition have an intrinsic bias in favor of ‘norm setting’. By contrast, mutual equivalence offers the alternative of a dynamic ‘norm-attracting’ approach because it generates de facto emulation among the regulatory bodies of TTIP members, hence giving incentives to each regulator to provide the best regulations to its domestic firms”. It has been also stated that the more innovative a TTIP regulator member is: a) the more attractive the regulations it designs may be for its own domestic firms and possibly for the TTIP partner’s firms, b) the more attractive it may also be for third-countries’ service providers. As a result, third-country service providers may be induced to enter TTIP markets via the most innovative TTIP member (a case of direct spill-over effects) and/or to adopt regulations similar to those of the most innovative TTIP member (a case of indirect spill-over effects).

Of course, all these dynamic effects are conditional upon the fact that TTIP has no restrictive rules of origin on foreign services or services providers. This argument has been based on Messerlin 2015. It was provided for educational purposes not as a summary but as a motivation to further discussion. The TTIP issues are not so simple and black and white as some populist politicians say. It is interesting how

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many percent of enthusiastic TTIP protesters really understand what this TTIP is all about. Because of this, it is important to provide as much information as possible on the agreement and its economic implications – positive and negative. There is nothing more disruptive than uniformed crowds.

1.6.2. TTIP – risk of discrimination and global trade negotiations One can find in literature a number of innovative observations in the area of trade in services and the discrimination effects of TTIP. Some authors state that in order to eliminate the risks of discrimination generated by TTIP, non-TTIP countries with shallow or no PTAs in services with the EU or the US could apply some collective pressure to re-launch the WTO negotiations in services or to focus on the Trade in Services Agreement (TISA) discussions. The earlier mentioned Messerlin indicated however that “re-launching the services negotiations in the WTO forum is highly unlikely. Talks on services regulations require a level of trust among negotiating countries to a point never before needed in the case of negotiations in goods. Trust is necessary to assess regulations that are hard to compare. This requires monitoring the implementation of the agreed commitments in an economically sound way. And it is needed to use the mutual equivalence instrument; both at the preliminary stage of the joint mutual evaluation and during the regulatory emulation process that mutual equivalence nurtures. Some research based on the above needs assessment come to a conclusion indicating that World Trade Organization (WTO) cannot provide the sufficient level of trust needed, each member cannot trust all its 160 plus partners. The argument here is that the trust factor can be (much) better handled by plurilateral negotiations, such as TISA, because of their limited number of like-minded participants. In light of current economic, political and migration crises, mutual trust among not-long-ago allies is diminishing exponentially. The world is changing and our approaches to trade and globalization may have to be adjusted too.

In this context, the fates of TTIP and TISA appear largely interdependent or more precisely, the mirror image of each other. If the TTIP negotiations do not see the necessary innovations in services talks, they are unlikely to deliver more than improved market access at the margin. Political support is then doomed to be low and the whole fate of TTIP is that it becomes volatile and highly subject to political turbulence and/or on small but aggressive vested interests. In such a case, TISA will become an attractive alternative to TTIP. Many researchers indicate that it is quite possible that the global outcome to TISA would (notably) be higher than the TTIP outcome if TTIP negotiators are unable or unwilling to use innovative ways to hold ‘talks’ on services regulations. This was stated by Messerlin about a year

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ago. Today’s cracks on the European Union structures put his observations in a different light. Innovation in TTIP negotiations is absolutely needed, but also the negotiating parties must py more attention to the changes in the World economic and political relations. It looks that this book will quickly have to be re-published in its updated form.

1.6.3. Economic impact on third countries An assessment of the economic impact of the proposal on third countries, as found in the 2013 EC Impact Assessment (hereinafter: IA) study, indicates that an ambitious FTA (Foreign Trade Agreement) between the EU and the US is expected to raise the total world income by 238 billion euros, of which 86 billion euros are expected to materialize in third countries. (a 20% spill-over effect is assumed in the economic model used). The European Commission assumes no major trade deviation effects for low-income countries and that the positive effects of a trade initiative between the two largest economies in the world are not at the expense of less developed economies. In addition, according to the impact assessment, the possibility of indirect spill-overs is the main driving force for the gains of third countries. These indirect spill-overs capture the possibility of third countries adopting the common standards agreed by the EU and the US, leading to lower costs and greater trade between them. This was concluded from an initial appraisal of the European Commission Impact Assessment European Commission proposal to authorize the opening of negotiations on a Transatlantic Trade and Investment Partnership between the European Union and United States of America; and Impact Assessment (SWD (2013) 68 final, SWD (2013) 69 final (summary)) for a Recommendation for a Council Decision authorizing the opening of negotiations on a comprehensive trade and investment agreement, called the Transatlantic Trade and Investment Partnership, between the European Union and the United States of America, European Parliament, Brussels, April 2013. See also: (Maniaki-Griva 2013) and (Impact Assessment 2013).

1.7. TTIP - a new kind of a trade agreement 1.7.1. Non-typical elements of TTIP TTIP is not a typical trade agreement. In the opinion of many scholars and experts, the TTIP is not a typical trade agreement. There are already deep levels of interconnectedness in the transatlantic economy. They therefore ask if TTIP is indeed a worthwhile endeavor.

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Complexity. This agreement attempts to address a variety of complex trade and investment issues which reflect the current status of the World economy; increasing globalization and needs for new trade regulation solutions. On the one hand, TTIP is expected to bring significant economic benefits. On the other hand, a number of difficult economic, legal, political, and cultural issues will have to be addressed. Especially complicated will be to address the historically systemic trade barriers and protectionism. The TTIP negotiations will have to find a reasonable balance among the various economic interests and then identify which areas can and which cannot be liberalized at this stage of the US – EU trade and investment relations development. This is particularly important when the agreement may contribute to increasing economic growth at the beginning of the 21st century.

Large and economically equal partners. Experts indicate that at the current economic situation TTIP is a trade negotiation between truly equal partners in terms of size and level of economic development (although there are some differences). The challenges of stark economic differences between the involved parties may make negotiations very difficult. TTIP hopes to draw on the comparable economic structures in the United States and the European Union. This may be similar to the EU negotiations with Canada, which after several years have been successfully completed, and resulted in a significant reduction of tariffs and other regulatory barriers to trade.

Concentration on non-tariff-barriers. Compared with other trade agreements, TTIP is not a standard free trade agreement. Unlike conventional trade agreements, TTIP is not primarily about lowering tariffs between the US and EU. These tariffs are already low; they amount to about 4 percent for EU and 3 percent for the US. It is estimated that the majority of potential economic gains (up to 80 percent) from TTIP would come from the elimination of contradictory standards, greater regulatory alignment, non-tariff barriers (NTB), and increased access to services and government procurement markets (Workman, Smith 2013).

1.7.2.  Options for the scope of TTIP Based on the above indication of major specific characteristics of TTIP as an international trade agreement, there are several options for shaping its scope and complexity levels. The following provides a review of the range of options for TTIP based on EU input. The concept, presented by EU in its impact assessment study completed in 2013, properly describes the possible options and is consistent with the US negotiators views (this description is based on Maniaki-Griva 2013).

The development scenarios used in this EC study depict options which EC had considered prior to deciding on initiating TTIP trade negotiations. In many furt-

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her documents EC (and the United States partners) refer to comprehensive and ambitious scenarios. The overview, presented below, allows deciphering of this term. On the other hand, in light of some of the difficulties in negotiating TTIP, this overview presents other options that both partners have when they continuing their efforts. Possibly, if fast accomplishment of the ambitious scenario is not feasible maybe a phased approach will be used. This may involve partial solutions as described below.

In the confidential impact assessment study prepared in 2013, the European Commission considered the three following options: • Scenario A: (Baseline scenario): It is a ‚no policy change’ option, envisaging modest progress focused on regulatory issues for goods under the Transatlantic Economic Council (TEC), the High Level Regulatory Cooperation Forum (HLRCF) and on-going sectoral dialogues. This scenario covers the period up to 2027, with projections of the world economy up to that year. The baseline includes all current EU and US signed or initiated bilateral agreements, in particular those with South Korea, and the EU agreements that are currently being finalized (EU-Canada, EU-Singapore) under stylized assumptions. It is based on developments in the bilateral economic relationship that are likely to be generated by the evolution and current trend of the EU and the US economies as well as by the global economic situation’. This scenario excludes the conclusion of the current multilateral trade negotiations in the WTO, because of their uncertain character.

• Scenario B. This option considers ‚Tariff-only’, ‚services-only’ or ‚procurement-only’ agreements. Policy option 1: A tariff-only agreement assumes a conservative 98% elimination of all tariff lines, ‚because in the absence of possible trade-offs in the negotiations between tariffs, nontariff barriers, services and government procurement, the expected abolition of tariffs is unlikely to cover all tariff lines’, falling short of the goal of full duty elimination. In its assumptions EC notes that even 98% duty elimination may be difficult to achieve in the absence of comprehensive negotiations. Policy option 2: A services-only agreement: the IA explains that given the on-going preparations for a plurilateral services initiative in the WTO, in which both the EU and the US are involved, it is politically unlikely that both sides would agree to a separate bilateral services-only track in parallel to these negotiations. The economic simulation nevertheless assumes a scenario of removing 10% of all existing barriers to trade in services in the case of a bilateral services-only agreement. Policy option B.3: A government procurement-only agreement an estimated 25% reduction of barriers is used under this scenario. According to EC, ‚the tariff-only option

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has been advocated particularly by those stakeholders that are still concerned by tariffs, for example the agricultural industry and the manufacturing industry. A services-only option has been proposed by a limited number of services industries and the procurement-only option is evoked/in line with the Memorandum of Understanding of 1995 between the EU and the US to further look into their respective commitments in the context of the WTO Government Procurement Agreement (GPA).

• Scenario C. A comprehensive option that involves the negotiation of a comprehensive EU-US trade and investment agreement, covering tariffs, and regulatory barriers for goods, services, investment and government procurement simultaneously. Under this option, two scenarios are explored proposing different degrees of trade liberalization: a) conservative scenario (policy option C1) which is in line with the individual agreements discussed above; and b) ambitious scenario (policy option C2). This scenario involves 100% tariff elimination, 25% in trade cost reductions of regulatory barriers, and 50% of barrier elimination for public procurement. The ambitious scenario would differ from the current EU and US standard approaches to FTAs and include three interlinked components: a) ambitious market access on tariffs, services, investment and procurement; b) an ambitious approach to regulatory issues, including disciplines as regards technical barriers to trade, sanitary and phytosanitary measures, upstream regulatory cooperation and enhanced sectorial regulatory compatibility beyond the EU and US standard approaches; and c) rules on a number of areas of common concern, such as trade facilitation/customs, trade-related aspects of competition policy, trade-related aspects of labor and the environment and intellectual property rights (including geographical indications)’. The EC indicated that its public consultations showed that most stakeholders supported a comprehensive, ambitious and realistic agreement that would be negotiated.

1.8. References [1].

[2].

[3].

A little guide through TTIP negotiations, (2015), Culture Action Europe from http:// cultureactioneurope.org/news/updates-on-ttip-negotiation-process/, (Accessed on November 30, 2015) Assessing the Claimed Benefits of the Transatlantic Trade and Investment Partnership (TTIP) (2014), OFSE (Austrian Foundation for Development Research, ASSESS_TTIP Final Report, 31 March 2014.

Burwell, Frances G. (2007), Transatlantic Leadership for a New Global Economy. Report.

Washington: Atlantic Council of the United States, 2007. http://www.atlanticcouncil.org/images/files/publication pdfs/65/070420- Transatlantic Global Economy.pdf

34 [4].

[5].

[6].

[7].

[8].

[9].

[10].

[11].

[12].

[13].

[14].

[15].

[16].

CHAPTER 1

CEPS Special Report No. 106, (2015), May 2015 Directives for the negotiation the Transatlantic Trade and Investment Partnership between the European Union and the United States of America (2013), General Secretariat of the Council Delegations, Council of the European Union, Brussels, June 17, 2013, document 11103/13. This document was declassified on October 9, 2014.

European Commission website (http://trade.ec.europa.eu/doclib/press/index. cfm?id=1230).

Impact Assessment (SWD (2013) 68 final, SWD (2013) 69 final (summary)) for a Recommendation for a Council Decision authorizing the opening of negotiations on a comprehensive trade and investment agreement, called the Transatlantic Trade and Investment Partnership, between the European Union and the United States of America (2013), European Parliament, Brussels, April 2013 Maniaki-Griva, A. (2013) Initial appraisal of a European Commission Impact Assessment European Commission proposal to authorize the opening of negotiations on a Transatlantic Trade and Investment Partnership between the European Union and United States of America Messerlin, P. (2015) The Transatlantic Trade and Investment Partnership: The Services Dimension, Paper No. 6 in the CEPS-CTR project “TTIP in the Balance’’ Questions and Answers (TTIP) (2013), European Commission Directorate‐General for Trade, October 8, 2013. http://ec.europa.eu/trade/policy/in‐focus/ttip/questions‐and‐ answers/.

Recommendations of European Parliament to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP) (2014), (2014/2228(INI), European Parliament resolution of 8 July 2015 The Transatlantic Trade and Investment Partnership (TTIP), TTIP explained (2015), European Commission, March 19, 2015, Available at: http://trade.ec.europa.eu/ doclib/docs/2014/may/tradoc_152462.pdf The Transatlantic Trade and Investment Partnership (TTIP), Towards an EU-US trade deal, Inside TTIP (2015), Directorate General for Trade of the European Commission, Luxembourg: Publications Office of the European Union, 2015.

TTIP and the Fifty States: Jobs and Growth from Coast to Coast (2013), Atlantic Council, the Bertelsmann Foundation, the British Embassy Washington (2013) Report. Washington, D.C. http://www.atlanticcouncil.org/images/publications/ TTIP_and_the_50_States_WEB.pdf.

TTIP FAQ: the negotiation phase – events, updates, key positions and docs (2015), www. maine.gov/legis/opla/TTIP%20FAQ.pdf Workman, G., Smith, J. (2013) Bridging the Transatlantic Economy: The Transatlantic Trade and Investment Partnership in Historical Perspective, Atlantic Council, November 2013; prepared for the 2013 Mortimer Caplin Conference on the World Economy, hosted by the Miller Center, University of Virginia, December 2, 2013, Washington, D.C.

CHAPTER 2

Elements of the TTIP negotiation phase

2.1. Mandates for negotiations Prior to starting joint meetings, both sides had to receive a mandate for negotiations according to their legal regimes. The procedures for providing mandates for negotiating TTIP by the United States and EU are different. In 2013, EU governments gave the European Commission a mandate to negotiate. During this time, the President notified the US Congress about the launching of the negotiations process. These procedures are discussed below. It is important to address these issues since they impact, not only schedules, but also the scope of negotiations, and; obviously, the chances for their timely and successful completion.

2.1.1. The US mandate for TTIP negotiations 2.1.1.1. Notification Letter to the Congress In June 2013, President Obama, European Council President Van Rompuy and European Commission President Barroso announced that the United States and the European Union would launch negotiations on the Transatlantic Trade and Investment Partnership agreement. The launch was followed by a vigorous domestic consultation process among the relevant stakeholders on the Obama Administration’s goals and objectives for the negotiation with the EU, which were publicly described in a March 20, 2013 letter to the U.S. Congress (US Objectives 2014; Letter 2013).

2.1.1.2. US objectives for TTIP The following addresses key U.S government goals and objectives as specified in the notification letter. It also outlines the US expectations how this agreement, if successfully concluded, will benefit American workers, businesses of all sizes, and consumers. The administration also indicated its commitment to sharing informa-

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tion through the press, social media, and www.USTR.gov on the progress of the negotiations. It also provided an option for the public to submit comments on the negotiations in an email to comment@ustr.eop.gov. In the President’s notification letter of March 20, 2013 several general assumptions underlying the negotiations were defined. They are: • Generating economic benefits. After consulting closely with a wide range of public and private sector stakeholders, the HLWG concluded in its February 11, 2013 Final Report that an agreement that addresses a broad range of bilateral trade and investment policies, as well as global issues of common interest, could generate substantial economic benefits on both sides of the Atlantic. The plan to launch negotiations reflects the broadly shared conviction that transatlantic trade and investment can be an even stronger driver of mutual job creation, economic growth, and competitiveness.

• Generate new business and employment. An ambitious, comprehensive, and high-standard TTIP can generate new business and employment by significantly expanding trade and investment opportunities in the United States and the EU. Economic studies point to significant benefits from a comprehensive agreement in terms of real GDP (gains of billions to tens of billions of dollars) and exports (gains of tens of billions of dollars). The TTIP could also establish rules and disciplines that address emerging challenges to the global trading system, and further strengthen the extraordinarily close strategic partnership between the United States and Europe.

• Innovative negotiating approaches. It will be important for TTIP to seek to substantially eliminate existing trade barriers and establish mechanisms that help the two sides address any trade concerns that may arise and further deepen economic integration. With average US and EU tariffs already quite low, new and innovative approaches to reducing the adverse impact on transatlantic commerce of non-tariff barriers must be a significant focus of the negotiations.

• Cost reduction. Reducing costs associated with regulatory differences that may unnecessarily impede trade, while continuing to meet legitimate regulatory objectives, will also be an important element of the negotiations.

• World rules. The United States and the EU will also have the opportunity to develop rules and principles on emerging global issues of common concern, thus strengthening the rules-based trading system from which all economies benefit.

• Stakeholders’ support. The potential gains overwhelmingly justify the effort.

Exploratory discussions over the past year and the support for a comprehensi-

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ve agreement that has been offered by a significant and diverse set of stakeholders boost our confidence that it will be possible to find mutually acceptable solutions on difficult issues and conclude an agreement that will benefit US workers, manufacturers, service suppliers, farmers, ranchers, innovators, creators, small- and medium-sized businesses, and consumers.

• Transparency. The Administration is committed to continuing its close cooperation with Congress in further developing US negotiating objectives for the TTIP Agreement. As we have done in the past, we will consult closely with Congress in developing our negotiating positions to ensure that they are consistent with Congressional priorities and objectives. We will also hold regular and rigorous consultations with stakeholders.

• Meeting EU Characteristics. As the Administration develops US negotiating proposals for the TTIP negotiations, we will carefully tailor our approach to the particular characteristics of the EU. In undertaking this effort, the Administration will work closely with Congress in developing high-standard negotiating proposals that reflect US values and priorities and include elements that may be relevant in the global context (US Objectives 2014; Letter 2014).

The specific US position is described in a number of subject area focused chapters. (Detailed information on U.S. position is provided further in the text). The US indicated (among others) the following priorities: • Trade in Goods: to eliminate all tariffs and other duties and charges on trade in agricultural, industrial, and consumer products, to obtain fully reciprocal access to the EU market for US textile and apparel products, to eliminate or reduce non-tariff barriers that decrease market opportunities for US exports, (sanitary and phytosanitary (SPS) restrictions, unjustified technical barriers to trade (TBT), restrictive administration of tariff-rate quotas and permit and licensing barriers, etc.), to seek greater compatibility of US and EU regulations and related standards development processes, to seek to establish rules of origin, etc.

• Trade in Services: to obtain improved market access in the EU on a comprehensive basis, to address the operation of any designated monopolies and state-owned enterprises, to reinforce transparency, impartiality, and due process with regard to authorizations to supply services, obtain and improve regulatory cooperation where appropriate; • Electronic Commerce and Information and Communication Technology (ICT) Services: to seek to develop appropriate provisions to facilitate the use of electronic commerce to support goods and services trade, to seek to include provisions that facilitate the movement of cross-border data flows;

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• Investment: to secure for US investors in the EU important rights comparable to those that would be available under US legal principles and practice, while ensuring that EU investors in the United States are not accorded greater substantive rights with respect to investment protections than US investors in the United States; to ensure that US investors receive treatment as favorable as that accorded to EU investors or other foreign investors in the EU, and seek to eliminate artificial or trade-distorting barriers to the establishment of US investment in the EU, to provide and maintain meaningful procedures for resolving disputes between US investors and the EU and its Member States that are in keeping with the goals of expeditious, fair, and transparent dispute resolution; • Customs and Trade Facilitation: to establish disciplines to ensure transparent, efficient, and predictable conduct of customs operations and ensure that customs measures are not applied in a manner that creates unwarranted procedural obstacles to trade; and enhance customs cooperation.

• Government Procurement: to expand market access opportunities for US goods, services, and suppliers of goods and services to the government procurement markets of the EU and its Member States; to ensure fair, transparent, and predictable conduct of government procurement and that US suppliers of goods and services receive treatment as favorable as that accorded to domestic and other foreign goods, services, and suppliers in the EU and its Member States; • Labor: to obtain appropriate commitments by the EU with respect to internationally recognized labor rights and effective enforcement of labor laws concerning those rights, consistent with US priorities and objectives, and establish procedures for consultations and cooperation to promote respect for internationally recognized labor rights; • Environment: to obtain, consistent with US priorities and objectives, appropriate commitments by the EU to protect the environment, including to conserve natural resources, and to effectively enforce environmental laws, and seek opportunities to address environmental issues of mutual interest; • Intellectual Property Rights (IPR): to obtain, consistent with US priorities and objectives, appropriate commitments that reflect the shared US-EU objective of high-level IPR protection and enforcement, and to sustain and enhance joint leadership on IPR issues; to seek new opportunities to advance and defend the interests of US creators, innovators, businesses, farmers, and workers.

• State-Owned Enterprises: to establish appropriate, globally relevant disciplines on state trading enterprises, state-owned enterprises, and designated monopolies (promote transparency and reduce trade distortions);

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• Small and Medium-Sized Enterprises (SMEs): to strengthen US-EU cooperation to enhance the participation of SMEs in trade • Transparency, Anticorruption, and Competition: to obtain improved transparency in the administration of EU and Member State trade and investment regimes, and rules that ensure trade- and investment-related measures are adopted and applied in an open and transparent manner that provides meaningful opportunities for public comment, notice, and review; to obtain appropriate commitments on anticorruption; • Dispute Settlement: to establish fair, transparent, timely, and effective procedures to settle disputes on matters arising under a trade and investment agreement with the EU, including through early identification and settlement of disputes through consultation.

The U.S administration also indicated that during the negotiating positions, it will take into account other important US objectives, including, but not limited to, the protection of health, safety, environment, essential security, and consumer interests (US Objectives 2014, Letter of notification 2013).

2.1.1.3. Trade Promotion Authority Another important source of mandate for negotiating TTIP is the content of the Trade Promotion Authority (TPA). This authority was granted to the Obama administration on June 24, 2015. TPA delineates borders for TTIP negotiations. All the negotiated trade agreements must be in the scope of this authority (similarly to EU Council directives for the European Commission negotiating TTIP – they are not legally binding but in practice the Council will have to approve the results of the negotiations, and if they are not consistent with the mandate they may not be approved). TPA is addressed further in this chapter.

2.2. EU Mandate for TTIP Negotiations 2.2.1. Introduction The EC negotiates along with: the European Parliament; businesses, trade unions and consumer, health and other interest groups; and the public. Once the final text is agreed upon, it’ll be governments and Members of the European Parliament (MEPs) who will have to approve this agreement (as mixed agreement).

The Commission works according to guidelines agreed by the EU’s Member States.

This negotiating mandate is agreed unanimously by all EU Member States. The European Commission, as the exclusive negotiator for the European Union, has

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a binding obligation to duly inform the European Parliament before and after the negotiation rounds. The European Commission is likely to take its responsibilities for cooperating with the European Parliament very seriously. The Parliament will have to vote in favor of the trade agreement for it to be implemented. If the European Parliament votes against the final agreement, the EU will not ratify the TTIP, as it already happened with the ACTA trade agreement.

2.2.2. European Council initial mandate On June 14, 2013 the Council adopted a mandate for the Commission to negotiate a comprehensive trade and investment agreement with the United States, the „transatlantic trade and investment partnership” (TTIP). The decision was taken at a meeting of the Foreign Affairs Council (Trade).

The mandate is composed of: a) a decision of the Council, b) a decision of the representatives of the member states authorizing the opening of negotiations, c) directives for the negotiation of the agreement. The directives foresee an agreement made up of three key components: market access; regulatory issues and non-tariff barriers; and rules. The Council agreed that audiovisual services will not be covered in the mandate, but that the Commission will have the opportunity to make recommendations on additional negotiating mandates.

The mandate established that the European Commission will negotiate on behalf of the EU and its member states, keeping the Trade Policy Committee and the European Parliament regularly informed and updated. The final agreement will be concluded by the Council and the member states after having obtained the ‘consent’ of the European Parliament. The decision to negotiate TTIP stems from the recommendations of a high-level working group on jobs and growth, established following an EU-US summit in Washington DC in November 2011. The working group set out to identify options for increasing trade and investment. Co-chaired

by US trade representative Ron Kirk and EU trade commissioner Karel de Gucht, it published its final report in February 2013. The European Council in February called on the Commission and the Council to follow up without delay on the recommendations of the high-level working group, during the current (Irish) presidency. The negotiations will strive for a comprehensive and ambitious agreement that addresses a broad range of bilateral trade and investment issues, including regulatory issues, with the aim of attaining market access that goes beyond what the US and the EU have achieved in previous trade agreements. The removal of unnecessary regulatory and non-tariff barriers will be a key objective (Press release 2013).

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2.2.3. EU Council directives (2013) On June 17, 2013 the Council published Directives for the negotiation on the Transatlantic Trade and Investment Partnership between the European Union and the United States of America (Directives 2013).

These directives provide initial scope and EU objectives and expectations for the TTIP agreement. They were provided in a number of areas. In general provisions, nature and scope of TTIP, and general principles were defined. EU objectives for TTIP were delineated. Subsequently, recommendations for negotiating three chapters of the proposed agreement were defined. They concern: market access; regulatory issues and non-tariff barriers; and rules. A comparison of further documents and results of the negotiating rounds indicate that the current scope of TTIP talks is almost fully consistent with these recommendations. The negotiations were, in fact, conducted with consideration of these recommendations. At this point it is worth addressing, in more detail, the general provisions of the directives constituting an element of the negotiating mandate. They stated that: For Nature and Scope of TTIP: • Bilateral obligations. The Agreement will exclusively contain provisions on trade and trade-related areas applicable between the Parties. The Agreement should confirm that the transatlantic trade and investment partnership is based on common values, including the protection and promotion of human rights and international security.

• Comprehensive agreement. The Agreement shall be ambitious, comprehensive, balanced, and fully consistent with World Trade Organization (WTO) rules and obligations.

• Reciprocal liberalization. The Agreement shall provide for the reciprocal liberalization of trade in goods and services as well as rules on trade-related issues, with a high level of ambition going beyond existing WTO commitments.

• All government structure. The obligations of the Agreement shall be binding on all levels of government.

• Three key elements. The Agreement shall be composed of three key components: (a) market access, (b) regulatory issues and Non-Tariff Barriers (NTBs), and (c) rules. All three components will be negotiated in parallel and will form part of a single undertaking ensuring a balanced outcome between the elimination of duties, the elimination of unnecessary regulatory obstacles to trade and an improvement in rules, leading to a substantial result in each of these components and effective opening of each other’s markets.

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In general principles, among others, the directives indicate that: • Principles underlying the agreement. The preamble will recall that the partnership with the United States is based on common principles and values consistent with the principles and objectives of the Union’s external action. It will refer, inter alia, to: Shared values in such areas as human rights, fundamental freedoms, democracy and the rule of law; The commitment of the Parties to sustainable development and the contribution of international trade to sustainable development in its economic, social and environmental dimensions, including economic development, full and productive employment and decent work for all as well as the protection and preservation of the environment and natural resources; The commitment of the Parties to an Agreement in full compliance with their rights and obligations arising out of the WTO and supportive of the multilateral trading system; The right of the Parties to take measures necessary to achieve legitimate public policy objectives on the basis of the level of protection of health, safety, labor, consumers, the environment and the promotion of cultural diversity as it is laid down in the UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions, that they deem appropriate; The shared objective of the Parties to take into account the particular challenges faced by small and medium-sized enterprises in contributing to the development of trade and investment; The commitment of the Parties to communicate with all relevant interested Parties, including the private sector and civil society organizations.

The directives identify the following objectives for TTIP negotiations: • Increase trade and investment. The objective of the Agreement is to increase trade and investment between the EU and the US by realizing the untapped potential of a truly transatlantic market place, generating new economic opportunities for the creation of jobs and growth through increased market access and greater regulatory compatibility and setting the path for global standards.

• Sustainable development. The Agreement should recognize that sustainable development is an overarching objective of the Parties and that they will aim at ensuring and facilitating respect of international environmental and labor agreements and standards while promoting high levels of protection for the environment, labor and consumers, consistent with the EU acquis and Member States’ legislation.

• Against lowering standards. The Agreement should recognize that the Parties will not encourage trade or foreign direct investment by lowering domestic

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environmental, labor or occupational health and safety legislation and standards, or by relaxing core labor standards or policies and legislation aimed at protecting and promoting cultural diversity.

• Diversity. The Agreement shall not contain provisions that would risk prejudicing the Union’s or its Member States’ cultural and linguistic diversity, namely in the cultural sector nor limit the Union and its Member States from maintaining existing policies and measures in support of the cultural sector given its special status within the EU and its Member States. The Agreement will not affect the capacity of the Union and its Member States to implement policies and measures to take account of developments in this sector in particular in the digital environment.

2.2.4. EU Parliament Directives (2015) On July 8, 2015, the European Parliament made a resolution containing the European Parliament’s recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP) (P8-TA-PROV(2015) 0252. In this resolution recommendations on the course and objectives of TTIP negotiations were provided including trade in goods and services. The resolution was prepared by the newly elected Parliament.

In the resolution, the European Parliament indicated that it believes that the EU and the US are key strategic partners; stressed that the Transatlantic Trade and Investment Partnership (TTIP) is the most significant recent EU-US project and should reinvigorate the transatlantic partnership as a whole, beyond its trade aspects. The resolution also emphasized that that a successful conclusion of TTIP is of high political importance. The European Parliament addressed a number of recommendations to the European Commission in the context of the ongoing negotiations on TTIP. These recommendations addressed the following subject groups: a) scope and broader context of TTIP, b) market access, c) regulatory cooperation and coherence pillar and NTBs, d) rules, e) transparency, civil society involvement, public and political outreach.

Understanding the general, broader EU assumptions for negotiations provides necessary background for evaluating the possibilities for further actions and progress in the TTIP negotiations. Some of them are described below. The European Parliament recommended to the European Commission: • to ensure that transparent TTIP negotiations lead to an ambitious, comprehensive and balanced trade and investment agreement of a high standard that would promote sustainable growth with shared benefits across Member States, with mutual and reciprocal benefits between the partners, increase in-

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ternational competitiveness and open up new opportunities for EU companies, in particular SMEs, support the creation of high-quality jobs for European citizens, directly benefit European consumers; the content and the implementation of the agreement are more important than the speed of the negotiations (This is a new statement and approach to negotiations. It differs with the U.S. priorities which called for the completion of these negotiations yet during the Obama Administration); • to emphasize that while the TTIP negotiations consist of negotiations on three main areas: ambitiously improving reciprocal market access (for goods, services, investment and public procurement at all levels of government), reducing NTBs and enhancing the compatibility of regulatory regimes, and developing common rules to address shared global trade challenges and opportunities; all these areas are equally important and need to be included in a comprehensive package; TTIP should be ambitious and binding on all levels of government on both sides of the Atlantic, the agreement should lead to lasting genuine market openness on a reciprocal basis and trade facilitation on the ground, and should pay particular attention to structural measures to achieve greater transatlantic cooperation while upholding regulatory standards and consumer protection and preventing social, fiscal and environmental dumping; • to keep in mind the strategic importance of the EU-US economic relationship in general and of TTIP in particular, inter alia as an opportunity to promote the principles and values, anchored in a rules-based framework, that the EU and the US share and cherish and to design a common approach and vision to global trade, investment and trade-related issues such as high standards, norms and regulations, in order to develop a broader transatlantic vision and a common set of strategic goals; to bear in mind that given the size of the transatlantic market, TTIP is an opportunity to shape and regulate the international trade order in order to ensure that both blocs thrive in an interconnected world; • to ensure, especially given the recent positive developments taking place in the World Trade Organization (WTO), that an agreement with the US serves as a stepping-stone for broader trade negotiations and is not pre-empting or counteracting the WTO process; bilateral and multilateral trade agreements should generally speaking be considered as a second-best option and must not prevent efforts made in order to reach significant improvements on the multilateral level; TTIP must ensure synergies with other trade agreements currently being negotiated; • to bear in mind that the Treaty on the Functioning of the European Union

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(TFEU) defines EU trade policy as an integral part of the Union’s overall external action and, therefore, to evaluate the implications of the final agreement, acknowledging opportunities, such as easier market access due to common trans-Atlantic standards, and risks, such as trade diversion from developing countries due to tariff preference erosion; • to ensure that the agreement guarantees full respect for EU fundamental rights standards through the inclusion of a legally binding and suspensive human rights clause as a standard part of EU trade agreements with third countries.

2.3. Negotiating entities Several subjects are involved in the negotiating process for EU. Apart from the European Commission, the Council (composed of representatives of the Member States’ governments) and the European Parliament are also regularly involved in the negotiating process.

European Commission. The European Commission negotiates TTIP on behalf of the EU and its 28 Member States. This solution was made based on the assumption that it is more effective to speak with one voice for 500 million people than if each Member States tried to negotiate separately. The Commission’s trade department (Directorate General for Trade) takes the lead in the negotiations while working closely with other Commission departments.

European Council. The Commission has a legal obligation to consult the Council on all aspects of the TTIP-negotiations. This occurs in various formats and at different levels. Since the start of the TTIP negotiating process until December 2015 the EC has had more than 45 meetings with the EU’s Member States, including at ministerial level. On top of this there are numerous bilateral and other meetings.

Also an extensive program of public meetings is carried out.

European Parliament. The European Parliament is similarly consulted and informed. In addition to the European Parliament’s Trade Committee, a specially set up Monitoring Group and a group of high-ranking MEPs around the Parliament’s president also work on the TTIP. Since the beginning of the talks, representatives of the Commission have appeared in the 15 meetings of the European Parliament and many more informal meetings to brief MEPs and answer their questions. So far, the Commission has sent more than 65 important TTIP documents to the European Parliament and answered over 80 parliamentary questions. The Parliament has welcomed this openness and transparency on several occasions.(TTIP explained 2015).

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INTA Committee of European Parliament. The European Parliament, and particularly the International Trade Committee (INTA) are crucial in the debate.

The INTA committee is responsible for the “establishment, implementation and monitoring of the Union’s common commercial policy and its external economic relations” in the European Parliament. Therefore, it was responsible for drafting the European Parliament position regarding the TTIP mandate and negotiations.

Its chair is German S&D member Mr Bernd Lange, who has been a member of the INTA committee since 2009. Ms. Cecilia Malmström, Commissioner for Trade (previously Commissioner for Home Affairs) succeeded Karel De Gucht who started the TTIP negotiations for the Commission. If Mr. De Gucht was criticized for being too optimistic about the TTIP and ISDS. Ms. Malmström tried to appease opposition on this controversial point in order to achieve a global agreement. The US is represented by the United States Trade Representative (USTR).

Chief negotiators lead the entire negotiating process. As of December 1, 2015, chief negotiators are: a) for the European Union Mr. Ignacio Garcia Bercero, Director of Unit for Neighbouring countries, USA and Canada in the DG Trade, and b) for the United States Dan Mullaney, United States Trade Representative (USTR) (A little guide 2015).

2.4. Negotiations The process of negotiating such a complex trade agreement requires addressing a large number of subject matters and efficient organization of the negotiating activities. The following paragraphs provide a review of negotiating principles and methods implemented for TTIP. It is also assessed if the negotiating process and the current status of negotiations insure meeting the assumed deadlines and objectives of TTIP negotiations (See chapter on negotiating mandates in this book) (TTIP explained 2015).

Since the beginning, the negotiations are carried out every few weeks. The TTIP is also an important point on the agenda of important international meetings such as the 2014 EU-US summit in Brussels. Within the EU, apart from the European Commission, the Council (where representatives of the Member States’ governments sit) and the European Parliament are also regularly involved in the negotiating process. The Commission has a legal obligation to consult the Council on all aspects of the TTIP-negotiations. This occurs in various formats and at different levels. Since the start of the TTIP process the Commission has had more than 45 meetings with the EU’s Member States, including at ministerial level. On top of this there are numerous bilateral and other meetings.

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The European Parliament is similarly consulted and informed. In addition to the European Parliament’s Trade Committee, a specially set up Monitoring Group and a group of high-ranking MEPs around the Parliament’s president also work on the TTIP. Since the beginning of the talks, representatives of the Commission have appeared in the 15 meetings of the European Parliament and many more informal meetings to brief MEPs and answer their questions. So far, the Commission has sent more than 65 important TTIP documents to the European Parliament, and answered over 80 parliamentary questions. The Parliament has welcomed this openness and transparency on several occasions (TTIP explained 2015).

2.5. Milestones in TTIP negotiating On July 8-12, 2013, the first negotiating round took place. Until December 1, 2015, eleven TTIP negotiating rounds took place. They mainly concentrated on presenting positions of the negotiating parties, defining the scope of agreement, and outlining course of action in the most difficult areas. A typical program of each round of negotiations involves these elements: round table negotiations led by chief negotiators, expert meetings, and meetings with stakeholders. A list of the completed rounds of negotiations is provided further in other sub-chapter of this book. Appendices show detailed information on the program and scope of issues discussed during each round.

2.6. Negotiating procedures Negotiating activities. The process involves: a) negotiating rounds and b) activities in-between negotiation rounds. Since the first round of talks in June 2013, the negotiations have continued every few weeks. The TTIP was also an important point on the agenda of the 2014 EU-US summit in Brussels which brought together the president of the European Commission Jose Manuel Barroso, the president of the European Council Herman van Rompuy and the president of the US Barack Obama.

Specialized groups. The negotiations are carried out by 24 joint EU-US specialized working groups. These groups are developing the texts on separate aspects and areas of the agreement. The groups collaborate between and during the negotiating rounds.

Documents and textual proposals. There are four major steps in developing drafts of TTIP documents. These activities lead to preparing a draft of the agreement and involve:

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• Activity 1: Broad position papers are first exchanged, introducing each partner’s aims and ambitions for selected areas of TTIP. • Activity 2: Initial offers are presented and exchanged to show the extent to which the partners are willing to open their markets (regarding trade in goods and/or services and other elements of the future agreement). This is presented in drafts of textual proposals exchanged by the partners. (Since 2014, major EU textual proposals have been published at the EU website. The U.S. partners do not make texts of their proposals publically available. The U.S. Trade Representative and the Office of the President publish infrequently press releases or fact sheets on progress in negotiations. Since December 2015, all textual proposals will be made available to the members of the European Parliament at high confidentiality levels). These proposals are usually presented before or tabled at the negotiating rounds. Some are however exchanged between the rounds.

• Activity 3: Negotiating rounds are carried out. The negotiators provide each other during week-long rounds of face-to-face talks (or address previously submitted) two types of documents: a) textual proposals are the EU’s initial proposals for legal texts on topics in TTIP, and b) Position papers set out and describe the EU’s approach on topics in TTIP negotiations.

• Activity 4: Text-based discussion and negotiations are carried out next. These negotiations are conducted primarily during the negotiating rounds, and also between them. Based on the exchanged textual proposals consolidated texts of particular elements of the agreement are drafted. This usually involves compilation of partners’ initial textual proposals. However, if no agreement can be initially achieved, the text in question is marked by brackets in initial documents to be addressed in the following negotiating rounds. Negotiators discuss either their respective textual proposals, or a consolidated text of the final agreement. At this stage, negotiators can also still come back on some points of the agreement, since as a principle, no chapter is definitely closed until the end of the negotiations and a final consensus is reached. (A little guide 2015, and EU website).

• Activity 5: The text of the final agreement will be the result of bilateral negotiations on these texts. It is gradually drafted after each negotiating round. (see: The Transatlantic Trade and Investment Partnership (TTIP), Towards an EU-US trade deal 2015) These documents since 2014 are provided to the public and can be found at http://www.ec.europa.eu/trade.

• Activity 6: The texts are submitted for public consultations according to rules established by each negotiating partners.

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2.6.1. Negative or positive list There is a fundamental choice among the two modalities available to the negotiators: would negotiators work on negative or positive lists of services to improve market access? The EU has traditionally relied on the positive list (only the sectors listed are liberalized, as in the KOREU agreement) while the US has traditionally relied on negative lists (every service is deemed to be liberalized except those listed, as in the KORUS agreement) – at least as long as US barriers are not imposed

by American states (in some sectors, such as professional services, a US federal offer is of very limited interest since many American states have very specific regulations). Evidently, negative lists offer a much clearer view of what is effectively liberalized. By contrast, positive lists often require, from the service providers, a thorough knowledge of what has not been liberalized. This is crucial in order for the parties to take advantage of the agreed liberalization provisions – a constraint that imposes high costs on foreign newcomers, and considerably weakens the pro-competitive impact of the liberalization measures.

The EU seems ready to shift to a negative list approach. The full consequences of this shift on the whole TTIP architecture, however, remain to be seen. First, the EU has to make its new negative list approach consistent with its previous positive list approach in its other PTAs, which means re-phrasing the many exceptions granted to EUMS. Second, such an exercise would logically require that the US starts to list its commitments at the American state level; an exercise it has rarely carried out before (the best illustration being public procurement) and may not be ready to do so. (Woolcock, Grier 2015) provide a detailed discussion of public procurement issues.

2.7. Innovation in negotiations 2.7.1. Innovative negotiations for innovative agreement It is commonly confirmed in literature, that achieving ambitious, comprehensive and balanced trade and investment agreement of a high standard that would promote sustainable growth requires development and implementation of innovative methods of negotiations. An innovative agreement requires innovative negotiations. This is a very extensive issue with many specific problems in almost each area of the negotiations.

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2.7.2. Examples of innovative approach For example, Messerlin 2015 advocates implementation of innovative negotiation techniques. Messerlin stated that the TTIP challenges “make it clear that talks on services regulations should rely on innovative techniques or they will end up with pleasant but empty words”. The recent record of TTIP negotiations may indicate that he is right. He comes to this contention based on several arguments.

The first issue in such a trade deal is whether these discussions should be limited to pure market access issues (allowing foreign firms to enter new markets without taking into account the impact of the existing regulations) or whether they should include talks on regulations (examining whether some regulations constitute unjustified barriers to market access). Non-tariff measures (NTMs) are of particular concern to exporters and importers in developing countries, as they are a major impediment to international trade and can prevent market access. Exporting companies seeking access to foreign markets and companies importing products need to comply with a wide range of requirements including technical regulations, product standards and customs procedures. (See more at: http://www. intracen.org/itc/market-info-tools/non-tariff-measures/#sthash.qsxUeluy.pdf). The frequency and magnitude of the Non-Tariff Measures (NTM) in services explains why discussions in services very often boil down to talks on regulations, as in the case of TTIP (Chase, Pelkmans 2015).

The above raises two challenges. The first is well-known and occurs during the negotiation phase. It is hard to assess the level of ‘unjustified’ restrictions imposed on business in a given service by existing regulations. The second challenge is rarely mentioned although it is probably more important. It occurs after the conclusion of a deal: it is very difficult to monitor the faithful implementation of the liberalization commitments of a trading partner. This is different from tariffs on goods where each country can easily monitor whether its trading partner is cutting its tariff as agreed. The post-agreement monitoring of commitments in services is particularly difficult when a partner modifies its regulations in order to improve the functioning of the service market at stake. By doing so, a partner may well make a foreign services provider’s life more difficult, giving the impression of having reneged on its commitments.

The first step in defining innovative techniques is to be clear about words.

The HLWG report is remarkably vague in this respect. It refers, almost indiscriminately, to “harmonization”, “mutual recognition”, “mutual equivalence”, “regulatory convergence”, “regulatory cooperation” and “regulatory coherence”. Some researchers and government agencies rightly stated that this vagueness has fueled suspicion and fear among public opinion that the TTIP would result in a single

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transatlantic market imposing changes in regulations on both partners that would inevitably lead to a lowering of standards and quality. After months of confusion, a paper by the US Chamber of Commerce attempted to clarify two basic terms used in TTIP negotiations “regulatory cooperation” and “regulatory coherence” (Regulatory coherence 2015) These problems in definition slow down or even make it impossible to reach progress in negotiations. It is obvious that most important terms must be properly understood by the partners. Adopting innovative techniques in the talks on services regulations requires clarification of the four remaining terms: harmonization, mutual recognition, mutual equivalence, regulatory convergence (Messerlin, 2007, 2011, and 2014). The joint process of mutual evaluation of respective regulations by the two TTIP partners has two interesting features. First, it reinforces the good regulatory practices required by domestic good regulatory coherence. As it requires the involvement of the partner’s regulating bodies in the negotiating process, it suggests some kind of division of labor between TTIP trade negotiators and national services regulators. Trade negotiators could suggest broad areas of services which they consider promising candidates for innovative negotiating approach in the TTIP. Then, national regulators in charge of these services, should confirm these opportunities and undertake the mutual evaluation process consisting of: a) examining the partner’s regulations; b) asking for clarifications and possibly changes in the partner’s regulations as pre-requisites for granting the mutual evaluation status; c) defining exceptions (if any) for some sub-sectors of the services examined and, d) requesting reviews to be performed after a few years.

The joint evaluation process offers a unique opportunity to build, restore and/ or improve trust within each signatory group and among them. First, within each signatory group: Among the most interesting documents on the Commission’s website on TTIP are those on the joint evaluation of seatbelts and lighting and visibility for cars. (see: European Commission website: http://trade.ec.europa.eu/ doclib/press/index.cfm?id=1230) These documents offer a very careful technical review of each element of these two essential components of car safety. The EU public has thus the best available assessment of EU regulations by the US and EU regulators, and vice-versa. Second, trust is built among the signatories. It would be unwise to assume that the US and the EU have little need to build trust. Paradoxically, the long history of the transatlantic trade tends to highlight cases where mistrust has flourished. In this respect, mutual evaluation offers an appropriate solution to such situations.

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2.7.3. TTIP – a living agreement TTIP should be conceived as a living agreement – meaning that the EU and the US agree to return to the table of negotiations within a few years after the conclusion of this first episode of TTIP negotiations in order to further deepen and/or expand their market opening. Indeed, the joint process of mutual evaluation itself requires time to be appropriately conducted, and also a living agreement in order to review the previous evaluations, if needed.

This may be an interesting idea for conducting TTIP negotiations. In light of significant delays maybe the negotiating partners could agree on completing negotiations in the areas which can be easily agreed upon. Next, within a living agreement concept, negotiations would concentrate on expanding the initial agreement by adding other discussed and approved matters of joint interest.

2.8. Approving TTIP 2.8.1. Introduction In the procedure of approving the TTIP is important to address the negotiation schedule and realistically assess the approval time-table. In the European Union, after the conclusion of the talks by the European Union, all EU Member States and the European Parliament will have to approve the agreement. In the United States, TTIP will be subject to congressional approval. Under standard procedures this may be a lengthy and complicated process which often involves a number of amendments and voting. Since the final TTIP document is expected to contain provisions that concern policy areas which are within the competences of the member states, it is believed that national parliaments will need to ratify the agreement.

2.8.2. TTIP - a mixed agreement Because of the chosen system of negotiating the TTIP it is a mixed agreement.

Some sources and experts, however, indicate that its legal situation should be confirmed by the European Court. A review of the legal circumstances leads to a conclusion that it is highly probable that ratification by all national governments is necessary.

The European Commission, on behalf of the European Union, is negotiating the TTIP with an American negotiation team. This means that the European Parliament and the Council are not directly involved in the actual negotiations process. There is however a system of checks and balances that provides a system for

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involving the European Parliament in the negotiation process. It involves, among other measures, the following two elements: • Element 1: The EU Parliament prepared a non-binding Report containing the European Parliament’s recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP) (2014/2228(INI)). The final text was adopted by 436 votes to 241, with 32 abstentions on 8 July 2015. The report aims at giving a stronger political backing to the red lines that the European Parliament sets and that the European Commission should not cross during the negotiations, • Element 2: In order to be legally binding the agreement must be eventually approved by the Parliament and the EU Council (unanimity required) and probably by national parliaments.

2.8.3. US TTIP Congressional approval 2.8.3.1. US standard approval procedure If no Trade Promotion Authority (TPA) is granted a standard procedure for approving trade agreements is implemented. This involves full-fledged deliberations of the Congress on the contents of the agreement with options to alter its text in its entirety or separate parts. This may be a very time consuming and complicated process. The approval is much easier and simpler under the so called TPA procedure which is addressed in the following sub-chapter.

2.8.3.2. Trade Promotion Authority (TPA) request The White House requested from the Congress Trade Promotion Authority (TPA). It is also called Fast Track. This is an executive negotiating power on trade deals. TPA allows Congress to cede negotiating authority under specifically defined parameters set forth in the bill. In its basic form, TPA delineates legislative and executive authority in trade deal talks, ostensibly ensuring the efficiency of the negotiations. By granting this solution, the US Congress agrees to a simplified consideration procedure for the negotiated trade deal; meaning that no amendments can be made and it has a limited amount of time to approve or reject the agreement. Though not explicitly necessary, since the initiation of TPA via the Trade Act of 1974 no major US trade deal including NAFTA, has been passed without it.

Therefore, it has become to be understood that TPA is a necessary precursor to any trade agreement.

On June 29, 2015, US President Barack Obama signed the unbundled Trade Promotion Authority (TPA), as a part of a comprehensive pro-trade package pas-

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sed by the Senate on June 24, 2015. It will allow the President to close any trade deal up to 2021 within this procedure. TPA will likely outlast the current political composition since it is valid until 2021, though Congress retains the right to cancel it up to 2018.

This is a very positive development. Trade Promotion Authority was granted to the Obama administration in June 2015. The signed TPA is a goodwill gesture from the US and portends gains in momentum for the TTIP. It assures the TTIP negotiating partners that the final agreement will be given timely and un-amended consideration by the U.S. Congress. The recently signed authority allowed the Obama administration to successfully complete the Trans-Pacific Partnership (TPP) with 11 Pacific Rim Countries (Buchanan, Wasiński 2015) The received TPA can now be used to politically support the TTIP negotiations, which in the opinion of some expense, have been nearly stalled after the initial exchange of bilateral interests. The lack of a TPA has neither blocked negotiations nor deprived European politicians of optimism, but it has decreased their determination and commitment. The TPA provides credibility for the American negotiators. Without a TPA, no concession from the US side would be reliable, so Europeans would be reluctant to give any concessions from their side. Now, with the TPA in hand, negotiators can enter the most difficult part of the negotiations.

2.9. Time factor in TTIP negotiations Both sides in these negotiations originally hoped that the negotiations would be concluded within an ambitious timescale of 18-24 months after their commencement (i.e. between the end of 2014 and the middle of 2015), well before the pressures of the 2016 US Presidential race begin to bear down on it. This timetable has proved to be too optimistic. The Financial Times reported in December 2014, that those involved thought that at best “a broad political agreement” might be reached by the end of 2015 with the details to be filled in later (Webb 2015). The US Government has said that it is pressing for an agreement to be reached under the current U.S. administration. This would require tangible progress by end-2015. As of December 2015, it seems that this schedule is also optimistic. The negotiations were conducted intensely; however there are still many controversial issues which need to be addressed and differences which need to be ironed out.

Buchanan and others state that in light of coming US election it is high time for both sides to progress. They estimate that there is still some time for effective negotiations to proceed, at least until the end of the first half of 2016. After then, the Obama administration will be under tremendous pressure from Democrats

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running for office and the administration will be edgy about deciding any thorny issues. Furthermore it seems that the TTIP may be such an issue since so far, it has not been unanimously supported by the members of the U.S. Congress. If the TTIP negotiations are concluded before the 2016 presidential victor is inaugurated in January 2017, the new president will be obliged to put the negotiated text to Congress for a vote. (Buchanan 2015) correctly indicate that if the negotiations are still open, they will, to a great extent, depend on the progress made in the talks hosted by the current administration and the willingness of the newly elected administration. This may involve possibly a candidate from a different party or with a different agenda. It is not certain if the new President decides to continue the work initiated under President Obama. On the other hand, the situation has changed significantly after TTP has been completed and in light of similar trade agreement between Canada and the European Union. From a geopolitical point of view, to insure balance and competitive trade flows, the completion of TTIP seems to be most certainly needed. In any way, experts agree that it is difficult not to agree with a notion that both negotiating parties need to take advantage of the moment to try to gain momentum in the TTIP negotiations from the newly passed TPA (Buchanan 2015; Wieczorek 2014).

2.10.  Transparency and public involvement 2.10.1.  General issues Transparency of the TTIP negotiations has become one of the major controversies of the entire process. Lack of transparency has been criticized by many organizations, chambers of commerce, governments, and EU Parliament members.

There were to phases regarding transparency issues in TTIP negotiations.

The first stage of negotiations was characterized by a standard approach in negotiating trade agreements which involved large levels of secrecy. Indeed no documents were published during the early stage of the negotiations. The European Commission and the U.S partners argued that these documents had to be kept secret to ensure the good development of the negotiation process.

The second phase started in 2014, when under massive public opinion mobilization; some measures have been taken to enhance transparency, including producing comprehensive information material made available on the Commission’s website. The European Commission indicated that including relevant stakeholders in the TTIP negotiation process is of paramount importance. It has, therefore, undertaken a series of initiatives to encourage the flow and exchange of information. In addition, the European Commission carries out an intensive dialogue

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with civil society. Events take place during and after each round of talks with several hundred representatives of civil society attending. At the last event, some 700 representatives of trade unions, federations, non-governmental organizations and consumer protection organizations took part. In addition to such dialogues, the Commission has carried out three public consultations on the TTIP before the start of the negotiations and is currently conducting one on the specific issues of investment protection.

2.10.2. EU position on transparency Based on Article 207 (3) and Article 208 of the Treaty on the Functioning of the European Union (TFEU) the European Parliament has to give its consent to any international agreement, including trade agreements, before these can enter into force. While the Parliament is not officially engaged in the negotiations with the US the European Commission has a binding obligation to fully inform the Parliaments about the progress and process of the negotiations (before and after each negotiation round). The Parliament has made it very clear in its two resolutions of October 2012 and May 2013 that maximum transparency and involvement of all stakeholders is required in order to build trust and legitimacy of both the negotiations and the outcome: “Recalls the need for proactive outreach and continuous and transparent engagement by the Commission with a wide range of stakeholders, including business, environmental, agricultural, consumer, labour and other representatives, throughout the negotiation process, in order to ensure fact-based discussions, build trust in the negotiations, obtain proportionate input from various sides, and foster public support by taking stakeholders’ concerns into consideration; encourages all stakeholders to actively participate and to put forward initiatives and information relevant to the negotiations.”

In February 2014 the Commission set up a new Advisory Group composed of 14 representatives from very diverse sectors – economics, trade unions, consumers, environment, health etc. Their role is to investigate specific issues that may arise during the process and to provide feedback to the EU negotiators. These representatives advise the EU’s chief negotiator and have access to a broad range of documents.

More relevant steps such as the publication of the EU positions papers have been taken since July 2014 and later, the publication of the EU negotiation mandate in October 2014. The Commission has posted on its website comprehensive material on all aspects of the negotiations, including on EU negotiating positions and objectives. In November 2015, as part of the New Commission Transparency initiative, Commissioner Malmström, in charge of international trade, announced that fewer documents are now classified “EU restricted” and more MEPs are allowed

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to access them. Also, a variety of documents can be accessed the EC website. (at http://ec.europa.eu/trade/policy/in-focus/ttip/ (See: A little guide 2015) The system of approval of the final text of the TTIP is a major element of checks and balances in this process. Experts indicate that democratic control of the TTIP negotiations is particularly strong at the end of the process when the text negotiated by the Commission has to be approved by the EU’s Member States in the Council and ratified by the European Parliament. Depending on the policy areas covered in the final agreement the 28 national parliaments of the EU’s Member States might also have to approve the deal (The Transatlantic Trade and Investment Partnership (TTIP), Towards an EU-US trade deal 2015).

2.11. Shaping the TTIP The trade tariffs between the EU and US are already low and average about three percent. Both negotiating sides plan an eventual elimination of these tariffs under TTIP. Major negotiating efforts and difficulties are in the area of non-tariff barriers to trade. Especially this will address coordinating product regulation and standards (e.g. labelling, product specifications, sanitary requirements) in areas where these are deemed necessary, and eliminating them in areas where they are not. Other areas for TTIP negotiations include protection for foreign investors and a procedure to resolve investment disputes between the US and EU; co-operation to achieve greater participation by SMEs in EU-US trade; and provisions on intellectual property to protect the interests of US businesses in the EU and vice versa

2.12. TTIP text structure 2.12.1. General The following pages of this guide explain, for each chapter in TTIP; “the reasons why we’re negotiating this topic; what we want in a final deal; the main sensitivities or concerns we’re aware of and what we’re doing to take them into account”.

The TTIP agreement has three main subject elements: • Market access which involves removing customs duties on goods and restrictions on services, gaining better access to public markets, and making it easier to invest • Improved regulatory coherence and cooperation by dismantling unnecessary regulatory barriers such as bureaucratic duplication of effort • Improved cooperation when it comes to setting international standards (TTIP explained 2015).

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2.12.2.  TTIP contents It is assumed that a final agreement would have 24 chapters, grouped together in three parts: Market access, Regulatory cooperation, and Rules. During the completed eleven rounds of negotiations a number of position papers and textual proposals were exchanged by the negotiating parties will be published (see also: http://ec.europa.eu/trade/policy/in-focus/ttip/about-ttip/).

Figure 2.1: TTIP – Planned subjects for negotiations and final document structure

Note: Detailed information on the scope of TTIP is provided in Appendices Source: EU

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2.13. Major areas for TTIP negotiations 2.13.1. Background The following provides an overview of the most important elements of the TTIP negotiations. It combines opinions from various sources to provide a map of major issues that have to be addressed to complete this important and ambitious agreement. Appendices provide detailed information on the areas for negotiations.

2.13.2. General – current differences between EU and US In January 2015, the EU Commission improved its website on the TTIP in order to give a better idea about what was going on. However, information on services are not as well covered by this effort as industrial goods. In its two-page ‘Fact sheet’ cover for services, the Commission lists five broad goals laconically: a) tackle barriers in maritime services and in “other” (unspecified) services; b) improve mobility of qualified providers of professional services (such as architects or lawyers); c) make it faster and simpler to obtain licenses or formal approval in services like banking and insurance, accountancy, management consultancy and legal advice; d) agree on new rules in telecommunications, e-commerce, financial services, postal and courier services, and maritime transport; e) ensure protection for sensitive sectors such as audiovisual, public health and education, social services and water distribution. See: European Commission website http://trade.ec.europa.eu/doclib/ press/index.cfm?id=1230. The two other Commission papers that deal with services are devoted to TTIP and culture and Protecting public services. But these papers simply restate the usual EU position on these topics – ranging from reluctance to outright opposition.

The US equivalent website is both more laconic and vaguer. It states briefly that the US seeks: a) to obtain improved market access in the EU on a comprehensive basis; b) to address the operation of any designated monopolies and state-owned enterprises, as appropriate; c) to reinforce transparency, impartiality, and due process with regard to authorizations to supply services; and d) to obtain additional disciplines in certain services sectors, while improving regulatory cooperation where appropriate. It is difficult to understand why the US is reluctant to provide more input on its negotiating position. Unfortunately, this approach creates negative reactions in many EU countries and their citizens. We would not be surprised if some unauthorized leaks of this information appear in the future. The overall social interest in TTIP is relatively high and there is a demand and hunger for new information.

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Additional information can be acquired from non-official sources. In Europe, a recent communication from the European Services Forum (the most active coalition of EU service providers) lists six services where the EU believes to have strong export interests: professional services, maritime transport, aviation transport, financial services, mobility of services suppliers and public procurement in services.

It also stresses the US reluctance to tackle the key issue of US-driven regulations and/or enforcement (particularly in professional services) and the American unwillingness to discuss financial services, mobility of services suppliers and the Jones Act (maritime transport) in particular. (The Jones Act requires that all goods transported by water between US ports be carried on US flagships, constructed in the US, owned by US citizens, and crewed by US citizens and US permanent residents (TTIP explained 2015; http://ec.europa.eu/trade/policy/in-focus/ttip/about-ttip/).

In the US, three other recommendations for a TTIP compromise to the usual general desire for TTIP commitments are defined: to go beyond TISA commitments to target infrastructure, information communications technology and construction; to delay the application of TTIP obligations with regard to financial services regulatory policies until three years after the entry in force of the TTIP; that is, once the regulatory restructuring in each market is solidified.

2.13.3.  Standards and regulations It has been commonly agreed that TTIP could have its biggest effect on growth in the area of standards and regulations. In the EU and the US regulatory bodies usually have the same aims: they want to protect people from risks to health, ensure safety at work, protect the environment, and guarantee the financial stability of firms. Yet, in spite of these common goals, on either side of the Atlantic, the TTIP partners often have different regulatory structures and traditions. The result is different regulations that sometimes make it much more difficult for firms to enter the other market. According to estimates, these bureaucratic hurdles alone are equivalent to customs duties of 10-20 percent. This particularly affects small and medium-sized companies (SMEs), which are unable to bear the extra costs (TTIP explained 2015; http://ec.europa.eu/trade/policy/in-focus/ttip/about-ttip/).

There is a number of sources which confirm that these negotiations are especially difficult since both partners are trying to preserve their interests and current economic systems. They prefer not to give up nor dilute the levels of protection they currently have embedded in their economic systems. This concerns such areas as: health and environment, and consumer protection. For example, hormone-treated beef, accepted in the US is not allowed in the EU. EC indicates that that

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regulatory alignment and mutual recognition will only be possible if real convergence on the required safety and environmental standards is guaranteed. The US negotiators are of the same opinion. The problem is that having the same general approach they often significantly differ when it comes to the details and particular standards.

In the area of regulation, addressing norms and standards is the most pressing issue. Differing norms and standards are often used on both markets. This, for example, concerns car safety standards. These standards differ in details between the US and EU, although at the end achieve a similarly high level of safety. Regulatory alignment of these regulations could cut the costs imposed on EU car exports to the US by as much as 25 percent without safety standards are in any way lowered. The effect for the US car manufacturers could be similar.

In February 2014, the European Union has identified several issues which were a priority in the area of regulation. They indicated that negotiations should contribute to: boosting trade whilst at the same time maintaining regulations on social and environmental protection (sustainable development); increasing the possibility for EU firms to import energy and raw materials from the US; negotiating the guarantee that particular foodstuffs or beverages from a specific place in Europe are the only products allowed to be sold in the US under their respective names (geographical indications or ‚GI’s’), receive the guarantee that the state will treat public companies (firms in which the state has a majority share) in the same way as other companies (TTIP explained 2015; http://ec.europa.eu/trade/policy/in-focus/ ttip/about-ttip/).

EU also indicated that expected economic benefits should be realized on the assumption that the EU’s high standards in the areas of the environment, health and safety, protection of privacy as well as workers’ and consumer rights are maintained. They indicated that EU’s high levels of protection are not, therefore, negotiable. The European Commission stated that their principle is that “progress in improving conditions for trade and investment will not be at the expense of our basic values”. (TTIP explained 2015; http://ec.europa.eu/trade/policy/in-focus/ttip/ about-ttip/).

2.13.4. Services There are a number of issues related to services and public services. From the point of view of the EU, the free trade agreement explicitly rules out liberalization of public services, but it does concern the equal treatment of foreign and domestic private service providers. In the area of services, the TTIP pursues aims no different to those set out in other trade agreements concluded in recent years and

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decades and which have long been in force in the EU. An important limitation is that which concerns the provision of public services. In the WTO’s Agreement on Services (GATS) and all its other free trade agreements to date, the EU has invoked a comprehensive horizontal (i.e. applying to all sectors) carve-out on market access in the area of public services. This, very far reaching carve-out, enables the EU to keep monopolies for the provision of public services at all administrative levels, including local councils, and also takes into account the issue of concessions. In the case of the trade agreement with Canada, for example, the EU inserted a carve-out in the area of water. This carve-out explicitly allows for giving preference to European service providers over their foreign counterparts in the area of public monopolies and concession. (TTIP explained 2015; http://ec.europa.eu/trade/policy/in-focus/ttip/about-ttip/).

2.13.5.  ISDS (Investor-to-state dispute settlement) Especially important is the area of investment protection and investor-to-state dispute settlement (ISDS). Much of the opposition to TTIP has centered on the ISDS provisions. These allow investors to bring proceedings against a foreign government that is party to the treaty. These cases are heard in tribunals outside the domestic legal system. The reason for including ISDS in trade agreements in the past was to provide investors with reassurance in countries where the legal system might be biased against them. If the government is found to be in breach of its treaty obligations, the harmed investor can receive monetary compensation or other forms of redress. Most ISDS provisions are contained not in trade agreements, but in bilateral investment treaties (BITs) (Webb 2015).

The EU presents the following stand on these issues. Investment is an essential element of a developed economy. In order to have predictable environments investors need to know that they will be treated fairly and not unfairly discriminated against compared to domestic firms. Since the late 1950s, therefore, the EU’s Member States have negotiated a network of investment protection agreements, all of which provide for investor-to-state dispute settlement (ISDS). Germany alone has negotiated more than 140 such agreements, all including ISDS provisions.

In the past, it has been European companies in particular which have made use of ISDS. Although this system has generally worked, in recent years there have, however, been repeated cases which have illustrated the shortcomings of existing investment protection agreements. The European Commission therefore proposes to use the ongoing negotiations in the TTIP for a root and branch improvement of the system. The Commission wants to see the relevant rules and conditions set out more clearly so as to underline the right to regulate. The Commission is also

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pushing to improve procedures to make these rules more transparent. (TTIP explained 2015).

A review of various position papers and statements indicates that the ISDS provisions are highly controversial. As stated earlier in this publication, there is widespread opposition to ISDS in basically all EU countries. Various concerns have been raised regarding this mechanism. For example, some sources indicate that they will undermine the power of national governments to act in the interest of their citizens. Others have raised concerns that as a result of ISDS proposals in TTIP, US oil companies could be challenging environmental regulations such as France’s laws against fracking and that US companies might be able to challenge the EU’s prohibition on genetically modified organisms (Monbiot 2013).

Some TTIP critics indicated that perhaps the greatest threat posed by TTIP is that it seeks to grant transnational corporations the power to sue individual countries directly for losses suffered in their jurisdictions as a result of public policy decisions. The provision for ISDS is unparalleled in its implications. They indicate that it elevates transnational capital to a legal status equivalent to that of the nation State. Under TTIP, US and EU corporations would thus be granted the power to challenge democratic decisions made by sovereign States, and to claim compensation where those decisions have an adverse impact on their profits (Hilary 2015).

In response to these concerns, negotiations over ISDS were suspended while the European Commission ran a public consultation between 27 March and 13 July 2014. The Commission noted that the consultation revealed four areas of particular concern: a) the protection of the right to regulate; b) the establishment and functioning of arbitral tribunals; c) the relationship between domestic judicial systems and ISDS; d) the review of ISDS decisions for legal correctness through an appellate mechanism (Consultation on investment protection in EU-US trade talks 2015).

The 8th of July 2015 European Parliament resolution called for a new ISDS system, one that is “subject to democratic principles and scrutiny, where potential cases are treated in a transparent manner by publicly appointed, independent professional judges in public hearings and which includes an appellate mechanism, where consistency of judicial decisions is ensured, the jurisdiction of courts of the EU and of the Member States is respected, and where private interests cannot undermine public policy objectives” (Point xv, page 15 European Parliament resolution of 8 July 2015 containing the European Parliament’s recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP) (2014/2228(INI)).

In September 2015, Cecilia Malmström announced proposals for a new Investment Court System to replace ISDS. She said that ISDS suffered from a lack of trust and a “new and transparent system” was needed. The proposed new system would have the following features: a) public Investment Court System composed

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of a first instance Tribunal and an Appeal Tribunal would be set up; b) judgements would be made by publicly appointed judges with high qualifications, comparable to those required for the members of permanent international courts such as the International Court of Justice and the WTO Appellate Body; c) the new Appeal Tribunal would be operating on similar principles to the WTO Appellate Body; the ability of investors to take a case before the Tribunal would be precisely defined and limited to cases such as targeted discrimination on the base of gender, race or religion, or nationality, expropriation without compensation, or denial of justice; d) governments’ right to regulate would be enshrined and guaranteed in the provisions of the trade and investment agreements. (Commission proposes new Investment Court System for TTIP and other EU trade investment negotiations 2015; Protecting public services in TTIP and other EU trade agreements 2015).

A report in the Financial Times said that the business community was skeptical about the proposal believing that a similar court already existed at the World Bank. There were also doubts about whether the US would back the proposal having put forward its own ideas on ISDS. In sum, this is one of the most important issues at the current stage of TTIP negotiations. This new system has been rejected by the United States.

2.13.6. Food standards Genetically modified (GM) crops are strictly regulated in the EU, while a number of EU directives prohibit the importation and sale of meat treated with certain growth hormones and chicken washed with chlorine. The US has disputed these rules at the WTO; the EU has argued that the restrictions are necessary for the protection of human health. Article 191 TFEU requires EU environmental policy, including the protection of human health, to be based on the ‘precautionary principle’. The EU can invoke the principle if a scientific evaluation does not allow the risk to be determined with sufficient certainty, and puts the burden of proof on the manufacturer of the product to show there is no danger. While the US has called the bans ‘unscientific’, and part of a protectionist strategy to shut US farms out of EU markets.

Whatever the merits of each case, the food issue reflects different sensitivities and preferences among consumers on each side of the Atlantic; for instance, even though the EU has approved certain GM crop varieties, retailers have collectively refused to carry modified products in their stores for more than a decade. The Commission has offered assurances that EU regulations on GM and hormones are not up for negotiation (changes to these would have to separately be approved by Council and the European Parliament), while the negotiating mandate states that

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any agreement must recognize the right for the Parties to appraise and manage risk in accordance with the level of protection that each side deems appropriate.

On the US side, in his notification to Congress on the commencement of negotiations, President Obama noted that one of the major objectives for the US was the elimination of food standards which are not based on science (Letter 2013).

2.13.7. Public procurement The Commission’s negotiating mandate anticipates that the TTIP will contain provisions to increase mutual access to government procurement markets at all administrative levels in the fields of public utilities and ensuring treatment no less favorable than that accorded to locally established suppliers.

The European Commission considers the EU’s public procurement markets to be more open than those of many of its trade partners, and based on its negotiating mandate, it appears more enthusiastic about this element of the Agreement than the US (the President’s notification to Congress did not mention procurement).

This view has been challenged by some commentators, who point out that while EU procurement markets are legally open, in practice, there remain many barriers to entry for businesses outside the EU. See, for instance, European Parliament Briefing Note Detailed appraisal of the impact assessment on rules concerning third countries’ reciprocal access to public procurement, June 2013 (also: Webb 2015).

The Commission is particularly keen to eliminate Buy American provisions and local provider requirements in US procurement markets that deny EU businesses fair access to the tendering process. However, the US may face particular difficulties in meeting the EU’s demands because the Federal Government cannot make decisions that bind the public procurement markets of individual states.

In the EU, there are concerns that liberalizing public procurement markets, combined with measures to protect foreign investors from government action, could constrain the power of national governments to decide how public services are provided (see section above on investor-state dispute settlement for more details).

The negotiations will be used to push for better access to public procurement markets, such as making regulations on them more transparent. For example, it would be very important for many EU firms to be able to take part in calls for tender in the US. Protection of investments also plays an important role in the negotiations. Here, TTIP represents an important chance to create equality of opportunity (TTIP explained 2015).

The EU and the US (except for 13 of the 50 individual States) have both signed the revised Agreement on Government Procurement (GPA), currently being im-

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plemented. The GPA rules and coverage will be the baseline for the procurement chapter in TTIP. Public procurement in the US is not a competence of the Federal Government, which cannot bind public procurement markets of the individual States. This is a concern for the EU which has a major interest in the opening up of US State procurement markets and wants TTIP to be binding on all levels of government. The EU is specifically worried about existing “Buy America” clauses which exclude EU companies from tendering. The US also maintains a preferential regime for national SME’s. Under the revised GPA commitments (yet to be implemented); only 32% or 178 billion euro of the US procurement market is open for EU businesses (these are EC estimates). The new GPA has not changed the current commitments of the US at state level, with the coverage in the 37 States varying, but excluding the procurement of cities, municipalities (in charge of procurement in the domain of utilities). The EU’s public procurement market is de jure open.

2.13.8. Air and maritime transport services The US applies stringent access and ownership limits to foreign participants in its air and maritime transport sectors. In particular, EU airlines are unable to hold more than 25% of a US carrier, while the Jones Act (formally The U.S. Merchant Marine Act 1920) requires all waterborne shipping between US ports to be carried out by vessels built in the US that are owned, registered and operated by Americans. The EU, which has a more open air and maritime sector, is keen to gain access to US markets (Webb 2015).

While it is impossible for EU airlines to hold more than 25% of an US carrier and the US cabotage market is totally closed to EU business both in air and maritime transport, the reverse does not hold for the EU. This has serious negative effects also on the EU express and courier services industry. Many of the additional regulatory barriers stakeholders brought to the attention of the Commission are on the US sub-federal (i.e. state) level. For the maritime sector, the US Jones Act establishes the biggest barrier to access. The Jones raises costs for many other industries and keeps foreign ships from helping when disasters like the BP oil spill strike. As a consequence of the Jones Act and its subsequent revisions, the European shipbuilding industry, including ship repair and maintenance, have been effectively excluded from selling vessels to be used in American coastwise trades.

If the Jones Act would be partially lifted for European ship types, the European shipbuilding industry (including ship maintenance and repair, marine equipment) will be able to enter a new market and to compete with the US industry on a fair level playing field.

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2.13.9. Financial services Following the 2008 financial crisis, the EU and U.S. have embarked on regulatory reforms in an effort to increase stability and reduce systemic risk in the sector.

However, the measures taken on each side of the Atlantic are different in both their substance and pace of implementation. The European Commission has expressed concern about the impact of this regulatory divergence; in particular, it believes that certain provisions of the US Dodd-Frank Act discriminate against foreign institutions with subsidiaries in the US, such as Barclays and Deutsche Bank.

The Commission is eager to prevent further divergence and sees the inclusion of financial services in TTIP as a means to this end. In particular, the Commission negotiating mandate calls for a ‘common framework’ that is ‘binding on all regulators and other competent authorities’. The Commission’s position was further articulated, and arguably hardened, by a so-called ‘non-paper’ published in January 2014, which argued that unjustified inconsistencies between EU and US financial regulation were not only a barrier to trade and investment, but undermine the global financial stability that both the US and EU are seeking to achieve (Co-operation on financial services regulation 2014).

While supporting the inclusion of financial services ‘access issues’ in TTIP, the US Trade Representative has made clear his preference for regulatory issues to be discussed within existing and appropriate global forums, such as the G20 and international standard setting bodies.

2.13.10. SPS measures, food & product safety regulation Both the EU and the US have high standards for food and product safety regulation. The EU treaty includes the so-called precautionary principle (Art. 191 TFEU) that seeks to enable a rapid response by authorities in case of a direct danger to human, animal or plant health, or to protect the environment. The principle here leads to preventive decision-making (‘better safe than sorry’) in the case of risk, which means that certain products are not allowed to be exported to the EU. The EU can invoke the principle if a scientific “evaluation does not allow the risk to be determined with sufficient certainty”, and puts the burden of proof on the manufacturer of the product to show there is no danger. The EU has invoked the precautionary principle to ban the import of US hormone-treated beef. Other areas of concern are chlorine-washed chicken, cherries, molluscan shellfish, tallow, raw milk and genetically modified/engineered crops (GMO/GE). High levels of consumer protection and current practices will make it difficult for both sides to compromise or adapt standards on these highly sensitive issues.

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2.13.11. Public services Nothing in the TTIP will limit the ability of both sides to provide state support to public services, to designate public monopolies or to place limits on market access and national treatment regarding publicly funded education, health care or water services. There is a long tradition in trade agreements of not dealing with such sectors. This situation is reinforced in the TTIP case by less polarized views on both sides of the Atlantic on these matters – the US and the EU are becoming more accommodating on these issues because their education, health and water services face problems that are different but severe in both economies. There now seems to be a willingness to learn lessons from others rather than impose any specific regime.

2.14. What is next? – options for further negotiations Some authors present an opinion that the TTIP negotiations got off to a bad start. They were launched amid an explosive cocktail of unspecified grand ambitions, excessive secrecy, unclear concepts (harmonization, mutual recognition, careless mention of equivalence) and totally unrealistic deadlines. All this, at a time when governments on both sides of the Atlantic are trying to play down just how hard it is to mobilize the necessary coalitions for such an endeavor – a problem not specific to trade issues, but one that prevails in many domains. Add a generous dose of spying among close friends and geopolitical turbulence in the wider world, and the cocktail was ready to create huge anxiety, fear and fury among EU and US public opinion, troubled by so much bad news since 2008. Both old and new opponents to the domestic reforms that TTIP was supposed to buttress have been very easy to mobilize (Messerlin 2015).

All these mistakes are particularly costly in the area of services which, as argued below, should be run by talks (rather than negotiations), well-defined (rather than unspecified) ambitions, trust (rather than secrecy) and realistic (not unrealistic) deadlines spread over time. The problem is that the economic significance of TTIP critically depends on services, which represent 73-79% of GDP on both sides of the Atlantic; 35% of EU exports to the US and 43% of US exports to the EU. Last but not least, the US accounts for 34% of the foreign direct investment stocks held by the EU in the rest of the world, and 44% of the foreign direct investment stocks held by the rest of the world in the EU. The early months of 2015 have seen two serious attempts to correct these initial mistakes. First came the transparency initiative of the Commission (January 2015), which posted papers on its website aiming to better explain the situation to stake-

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holders. The second initiative (March 2015) is a paper on regulatory coherence and cooperation released by the US Chamber of Commerce – tackling head on the most crucial aspects of how to deal with services in the context of modern economies.

The thrust of this paper is as follows. The services dimension of TTIP will bring substantial welfare gains only if the two sides are convinced that, first, they need to undertake domestic reforms to improve the performance of their services sectors and, second, that TTIP is an essential instrument to buttress and boost these domestic reforms. In turn, such a use of TTIP requires a fundamental overhaul of the way ‘talks’ – not negotiations, as explained below – in services will be held. The need for such innovations justifies abandoning the term negotiations’ in services and substitute it by talks. Without such innovations, TTIP will only deliver welfare gains ‘at the margins’ of the services sectors, hence undermining its capacity to attract the strong political support it requires to be concluded successfully. The two last years have shown that it would be unwise to assume that such strong political support already exists. In fact, since mid-2014, TTIP has faced wide-ranging and vociferous opposition in EU member states that are traditionally free-trade supporters, such as Germany. In addition, services have considerable potential to be the source of toxic transatlantic disputes – be they old (audiovisual) or new (data protection); each of them capable of fueling, at any time, emotional charges among public opinion of both sides of the Atlantic.

2.15. References [1].

[2].

[3].

[4].

[5].

[6].

[7].

[8].

Akman, S., Evenett, S., Low, P. (2015) Catalyst? TTIP’s impact on the Rest, VOX CEPR’s Policy Portal.

A little guide through TTIP negotiations, (2015), Culture Action Europe from http:// cultureactioneurope.org/news/updates-on-ttip-negotiation-process/, (Accessed on November 30, 2015) Assessing the Claimed Benefits of the Transatlantic Trade and Investment Partnership (TTIP) (2014), OFSE (Austrian Foundation for Development Research, ASSESS_TTIP Final Report, 31 March 2014.

Buchanan Ponczek, C., M. Wasiński, C. (2015), Trade promotion authority: An Opportunity to invigorate the TTIP negotiations, PISM Bulletin, 68 (800), July 7, 2015.

Burwell, Frances G. (2007), Transatlantic Leadership for a New Global Economy. Report.

Washington: Atlantic Council of the United States, 2007. http://www.atlanticcouncil. org/images/files/publication pdfs/65/070420- Transatlantic Global Economy.pdf CEPS Special Report No. 106, (2015), May 2015 Chase, P., Pelkmans, J. (2015), This time it’s different: Turbo-charging regulatory cooperation in TTIP, CEPS. Commission proposes new Investment Court System for TTIP and other EU trade investment negotiations (2015), European Commission Press Release, September 16, 2015.

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[10].

[11].

[12].

[13].

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Consultation on investment protection in EU-US trade talks (2015), European Commission Press Release, January 13, 2015 Co-operation on financial services regulation (2014), European Commission, 27 January 2014 Directives for the negotiation the Transatlantic Trade and Investment Partnership between the European Union and the United States of America (2013), General Secretariat of the Council Delegations, Council of the European Union, Brussels, June 17, 2013, document 11103/13. This document was declassified on October 9, 2014.

European Commission website (http://trade.ec.europa.eu/doclib/press/index. cfm?id=1230).

Hilary, J. (2015), The Transatlantic Trade and Investment Partnership - War on Want, February 2015 http://ec.europa.eu/trade/policy/in-focus/ttip/about-ttip/ http://www.intracen.org/itc/market-info-tools/non-tariff-measures/#sthash.qsxUeluy.pdf) Impact Assessment (SWD (2013) 68 final, SWD (2013) 69 final (summary)) for a Recommendation for a Council Decision authorizing the opening of negotiations on a comprehensive trade and investment agreement, called the Transatlantic Trade and Investment Partnership, between the European Union and the United States of America (2013), European Parliament, Brussels, April 2013 Letter from the Acting US Trade Representative to the Speaker of the House of Representatives (2013), March 20, 2013.

Letter of notification of March 20, 2013 Available at: https://ustr.gov/sites/default/ files/03202013%20TTIP%20Notification%20Letter.PDF Maniaki-Griva, A. (2013) Initial appraisal of a European Commission Impact Assessment European Commission proposal to authorize the opening of negotiations on a Transatlantic Trade and Investment Partnership between the European Union and United States of America Messerlin, P. (2015) The Transatlantic Trade and Investment Partnership: The Services Dimension, Paper No. 6 in the CEPS-CTR project “TTIP in the Balance’’ Monbiot, G. (2014) This Transatlantic trade deal is a full-frontal assault on democracy, The Guardian, November 4, 2013 Questions and Answers (TTIP) (2013), European Commission Directorate‐General for Trade October 8, 2013 from http://ec.europa.eu/trade/policy/in‐focus/ttip/ questions‐and‐answers/ Press Release (2013), 10919/13, Council of the European Union (2013), Presse 255, Luxembourg, June 13, 2013.

Protecting public services in TTIP and other EU trade agreements (2015), European Commission Press Release, July 13, 2015 Recommendations of European Parliament to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP) (2014), (2014/2228(INI), European Parliament resolution of 8 July 2015 Regulatory coherence and cooperation in the Transatlantic Trade and Investment Partnership (2015), U.S Chamber of Commerce, Washington D.C. The Transatlantic Trade and Investment Partnership (TTIP), TTIP explained (2015), European Commission, March 19, 2015, Available at: http://trade.ec.europa.eu/ doclib/docs/2014/may/tradoc_152462.pdf The Transatlantic Trade and Investment Partnership (TTIP), Towards an EU-US trade deal, Inside TTIP (2015), Directorate General for Trade of the European Commission, Luxembourg: Publications Office of the European Union, 2015.

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[29].

[30].

[31].

[32].

[33].

[34].

[35].

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TTIP and the Fifty States: Jobs and Growth from Coast to Coast (2013), Atlantic Council, the Bertelsmann Foundation, the British Embassy Washington (2013) Report. Washington, D.C. http://www.atlanticcouncil.org/images/publications/ TTIP_and_the_50_States_WEB.pdf.

TTIP FAQ: the negotiation phase – events, updates, key positions and docs (2015), www. maine.gov/legis/opla/TTIP%20FAQ.pdf U.S. Objectives, U.S. Benefits In the Transatlantic Trade and Investment Partnership: A Detailed View (2014), Office of the United States Trade Representative, Executive Office of the President, March 2014, Webb, D. (2015), The Transatlantic Trade and Investment Partnership, Briefing paper Number 06688, October 6, 2015, House of Commons, papers@parliament.uk Wieczorek, J. (2014), Transatlantyckie partnerstwo w dziedzinie handlu i inwestycji – dźwignią wolnego handlu?, Myśl Ekonomiczna i Polityczna, Uczelnia Łazarskiego, 1/2014 Winikoff, J. (2013), Fact Sheet – US‐EU Trade & the Transatlantic Trade and Investment Partnership, American Security Project. July 2013. http://americansecurityproject.org/ featured‐items/2013/fact‐sheet‐us‐eu‐trade‐the‐transatlantic‐trade‐and‐investment‐ partnership/.

Workman, G., Smith, J. (2013) Bridging the Transatlantic Economy: The Transatlantic Trade and Investment Partnership in Historical Perspective, Atlantic Council, November 2013; prepared for the 2013 Mortimer Caplin Conference on the World Economy, hosted by the Miller Center, University of Virginia, December 2, 2013, Washington, D.C.

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Impact of US and EU economic power and competitiveness on TTIP negotiations and benefits 3.1.  Introduction This chapter contains a comparative analysis of economic power and competitiveness position of two TTIP partners – the US and the EU. The main objective of this investigation is to present a fairly detailed picture of differences in economic potential of these countries at three levels of economic aggregation: macro, mezzo and micro. The assessment addresses possible impact of these differences on the TTIP negotiations and implementation process. It has been undertaken to provide a better understanding of the negotiation bargaining strengths and positions of the TTIP partners stemming from differences in their economic situation and competitive position.

It has been assumed that as a result of relatively high transparency of the TTIP negotiations demanded by the public and numerous lobbyists monitoring the process of negotiation, the agreement must satisfy the respective parties, whatever the scale or a scope of possible objections. It is therefore, very important to properly identify all the factors (objective and subjective) which impact options for formulating the TTIP provisions. If they are properly explained and understood, the TTIP assumptions may probably gain a much wider support, not only among economists, but also from societies and politicians. The presented assessment will provide inputs to overcome possible difficulties and critical areas in the negotiations. The chosen methodology will also contribute to addressing the problem of a fair split of potential gains from TTIP between the partners, given the existing differences in their economic power and competitiveness.

3.2.  Methodology assumptions To achieve the above objectives, we have applied an assessment methodology which involves a number of economic tools. For macroeconomic aggregation, the

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following factors were considered: economic growth performance as measured by the magic quadrangle, assessment of productivity levels, tendencies for change, evaluation of innovativeness and entrepreneurial attitude, and finally, presentation of indicators reflecting quality and strengths of education systems. For mezzo and micro-economic levels, we have applied sectoral performance indicators, and the World Bank easiness in doing business methodology for small and medium level economic units. Finally, the assessment involves examination of international competitiveness of both partners as measured by the Revealed Comparative Advantage (RCA) indices compared against Standard International Trade Classification (SITC) modified by a high-tech input factors. The completed multi-factor assessment to evaluate possible impacts of an unequal economic and competitive position of partners on the outcome of the trade agreement talks represents a new and unique approach to evaluating such negotiations. In this particular application, it addresses the possible impact of these differences on the content of the final text of the TTIP agreement and difficulties which the partners may face during the last phases of the negotiations. The analysis also addresses possible uneven split of prospective gains from TTIP between EU and US. The methodology purposely does not employ any econometric tools to estimate possible divisions in gains from the TTIP implementation. It was concluded that the complexity of the considered issues would require the creation of very complicated econometric models with limited chances for developing valuable conclusions which are consistent with the scope and objectives of this publication. These tools may be applied under a different research and analytical agenda. As for TTIP, the applied assessment methodology seems to be sufficient for accomplishing objectives of this analysis.

The above mentioned analytical actions will provide a better sense and contribute to understanding of comforts and problems which the TTIP negotiating partners and their respective economic agents may have at the negotiation table and during the implementation of this agreement. This analysis is particularly important because it addresses uneven economic strengths and/or differences in respective competitiveness position and potential for further change of the TTIP negotiating partners. Based on experience in negotiating international trade agreements it is known that these differences may have significant impacts on the negotiating processes. It is important to understand these factors to better address negotiated issues and appreciate mutual benefits transpiring from such trade accords. Limited economic analyses of the TTIP negotiating process and its impact on the US-EU relations probably add to lack of understanding of this trade and investment relaxation initiative. There is meaningful opposition to TTIP in some countries (often resulting from limited understanding of the negotiating process and its economic

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implications). This analysis will provide a valuable input to this discussion and hopefully help in separating indisputable economic conclusions from political and populist arguments.

3.3.  Methods for assessing differences in economic strengths and competitiveness Differences in economic strength and competitiveness of the TTIP partners may be a factor in negotiating this historically important agreement. This issue is addressed below with special consideration of relevant theory notions and historical facts.

It must be clearly stated that the presented assessment approach has been formed based on the assumption, in which we strongly believe, that regardless of the power and competitive differences, both partners will strongly benefit from further eliminating barriers to trade relations and business activities. This concerns either tariff reduction or non-tariff measures including removal of technical or regulatory barriers. Extended trade, easier and friendlier institutional environment for business activities should bring benefits by allowing the partners to exploit their comparative advantages, reap the benefits of economies of scale, and secure and stimulate competition. All this should result in a greater variety of products available to consumers. The agreement should also lead to more stable markets and prices even if the gains from these undertakings are not likely to be evenly distributed. This uneven distribution of benefits is to some extent explaining the opposition to the TTIP eventual outcomes by some economic agents. We believe that the analysis will prove that extended trade, simplified institutional and regulatory environment for business development and trade expansion should result in additional mutual benefits and better exploitation of the US and EU comparative advantages, more efficient usage of benefits of economies of scale, and increased consumer satisfaction. TTIP should also contribute to the stability of financial markets, controlled inflation and long-term economic prosperity. We also believe that these objectives can be accomplished even if economic gains resulting from this agreement are not evenly distributed between both parties.

International trade theory and a number of recent research findings conclude that one country’s economic supremacy on macro or mezzo sectoral level does not necessarily imply bigger gains by a stronger or bigger partner from trade agreements. D. Ricardo stated and proved in his comparative advantage theory that poorer or less efficient country can still gain from trade development. As suggested by J. St. Mill (Mill 1909), a bigger or stronger country may not benefit as much as a smaller or weaker country because the split in gains is comparative demand

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strength driven and/or limited supply dependent (Landreth, Colander 2002). In recent times there has been a number of in-depth analyses which indicate convincingly that sometimes poorer partners may not only gain some but they may gain relatively more than bigger ones (Fajgelbaum, Khandelwal 2014).

Of course all this may hold true. In asymmetric conditions however, as experienced either during colonial times (European colonial powers vs. their colonies) or fairly recently when hegemon countries forced (militarily and/or politically) dependent states to accept unfair conditions, for example US or Russia versus their satellites or countries they control, these trends maybe distorted. Currently, under relatively transparent international conditions, the industrialized nations try to secure conditions as set up in international agreements and those incorporated and promoted by the World Bank, WTO, OECD and other international organizations. This has created protocols for standardizing international business activities between member states.

We share a prevailing view, expressed during a recent EU Ecosoc Meeting in Malta on March 9, 2015 that “the business sector in Europe believes that a deep and comprehensive Transatlantic Trade and Investment Partnership (TTIP) can further enhance this economic relationship and ensure that everyone enjoys the benefits of trade and investment ties more fully” (The Malta 2015). What is more important and indicative of a wide support for TTIP, is that it was not only the opinion of EU experts and bureaucrats, and large EU member states, but also of representatives of Malta which is the smallest and in a sense the weakest economy state in EU. Malta’s expectations of TTIP with respect to their small economy as stated in the above Communique are expressed as follows: “the business community in Malta is very positive towards TTIP and hopes for a deep and comprehensive treaty.

Malta expects further progress in fields such as international maritime services and financial services to the marine industry, hoping to see greater ambition and commitment from the US in these particular sectors” (The Malta 2015). These expectations clearly illustrate that small and medium size countries may look for their opportunities in certain sectors or niches of these sectors. These countries should be provided with such opportunities during the TTIP negotiations and in its final provisions.

3.4. Measuring economic strength and competitiveness 3.4.1. Background A critically important element of the applied assessment methodology is the definition of how to measure economic strength, prowess and competitiveness.

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There are plenty of ways to measure countries economic power and their competitiveness. Depending on the scope of the assessment various analytical tools can be used. Several selected methodological issues are addressed below.

First, an economic strength analysis involves macro, mezzo (sectoral and/or regional), and micro aspects of these problems. They all may be equally important when we compare the economic power of two or more countries/economies. Measuring prowess or effectiveness, and flexibility gives the nominal economic power a dynamic dimension of its inherent factors, which is necessary to get a better feeling for a value/weight of the accumulated potential.

The second factor, competitiveness, can also be measured in various ways. The first approach involves analyzing the current results as an outcome of the accumulated assets strengths or weights. This is referred to as the competitive position or level of competitiveness. One may also try to measure factors of competitiveness in a dynamic way by assessing the factors probable strengths and their impact on the ability to maintain and/or to increase the already achieved competitive position.

This approach is referred to as the long-run ability to compete or competitiveness.

It is slightly more ambitious as it requires deeper or “tomographic” analysis of the significance of factors of competitiveness as opposed to “photo” type of approach because the latter method is predominantly based on statistical observations. Both methods will be used in this assessment to provide a better picture and a more balanced judgment on the competitiveness of US and EU1 (Bieńkowski 1993, 1995).

3.4.2. Macro level analysis The value and growth of the GDP are critical to assess a country’s economic position against other countries, and indirectly, its competitiveness especially when we consider them as a criterion of the GDP’s long-term growth rates. When the GDP growth rates exceed that of other countries for a longer period it usually indicates the country’s more efficient use of resources, which leads to its higher competitiveness as well. As a result, the GDP per capita may be used as a proxy for competitiveness position because it results (except for countries of with abundant natural resources per capita) from more efficient uses of available assets, predominantly due to better economic policies.

1

More comprehensive technics to measure countries competitive position and/or potential of various countries have been employed by two world leading institutions: World Economic Forum – WEF (based in Geneva and NYC) and Institute for Management Development (based in Lausanne). They have developed very sophisticated methodologies encompassing over 300 measures (hard - measured in numbers, and soft – including collected opinions and expertize) which they update and modify over years. These methodologies are supplementary to the methodology presented in this publication and will be used occasionally in due course (see: WEF Annual Reports for 1990-2015, IMD Annual Reports for 1990 -2015).

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Equally important, of course, is the structure of the produced GDP, which should change over time to reflect the ever-changing market requirements for technological upgrading in response to new demand. A country’s ability to undertake structural adjustments, as reflected in the GDP’s changing composition, usually indicates its ability to compete in the longer run.

For the positive GDP growth assessment, as a criterion of economic power and competitiveness, we need to have other macro growth indicators to be positive as well. Namely, GDP growth should be assessed as a positive sign when it comes together with low or moderate inflation and when it creates more jobs, thus lowering or stabilizing unemployment at the acceptable, say at non-accelerating inflation rates (NAIRU levels)2. Another indicator of healthy growth and competitiveness improvement could be a zero balance of payment so that the country indebtedness is not creating a problem hampering growth and competitiveness in the longer run when its size, in proportion to GDP, exceeds the safe limits for a particular country.

It is very difficult to achieve simultaneously a positive and relatively fast GDP growth, low inflation, fast job creation and low unemployment and maintain a stable and well-structured balance of payments. Based on this notion, confirmed and exemplified by the Phillips curve, which experienced and mostly Keynesian economists call this situation an impossible dream or a magic quadrangle. They believe that achieving fast growth and low or no inflation contradicts each other. Yet, as defined in the Mundell’s policy mix concept, the four goals could be achieved at the same time provided a right economic policy is implemented, when tough monetary policies and active supply side actions are combined, with simultaneous decentralization of decisions and money allocation are implemented. Maintaining an open trade policy will further enhance these policies. As the Reagan administration proved in the 1980s, after implementing the Mundell’s policy mix concept in the US reality, the magic quadrangle proved to be just a myth based on wrong concepts, i.e., that by implementation of the policy mix idea a country can have it all, positive and relatively fast GDP growth which secured job creation and low inflation at the same time. In the US reality, balance of payments was not a problem thanks to large influx of funds from abroad. This is because the US is a safe heaven and the US dollar plays a critically important role in the world international transactions. Indirectly, however, that strong US position has been reinforced by the Reagan administration economic policy as well. The reality was that it strengthened the good reputation of the American economy and the position of the US dollar (Bienkowski 1993, 1995).

2

The non-accelerating inflation rate of unemployment (NAIRU) is the specific level of unemployment that exists in an economy that does not cause inflation to increase. The non-accelerating rate of unemployment (NAIRU) often represents an equilibrium between the state of the economy and the labor market. http://www.investopedia.com/terms/n/non-accelerating-rate-unemployment.asp

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The above elaboration on the Mundells’s policy mix and the magic quadrangle is important because it explains why we will use the magic quadrangle concept as a measure to assess economic potential and competitiveness position of a given country. Simply said, a positive signs of the “magic quadrangle” indicators (GDP growth, inflation level, employment growth/ unemployment level change, and balance of payments) will be used as indicators of the correct choice and/or effectiveness of economic policies; and indirectly, a sound foundation for the country’s ability to compete internationally in the longer run. We will examine and compare the US and EU economies using this measure. As for other indicators of sectoral character on macro level, we will use comparisons of productivity, innovativeness, science and education, to mention the most important ones, to compare EU and US potential and competitiveness.

Productivity is usually one of the best indicators of economic power, prowess and competitiveness. It can be measured in various ways: as the GDP, production per capita or per number of actually employed labor or per hour of work. The last measure seems to be the most adequate for it is the best reflection of the efficiency of the economy. However, there is a caveat not to be missed if we want to make a final judgment on competitiveness of the country, its industry or companies. Namely, we have to compare the productivity with the cost factor. The corrected measure is called unit labor cost (ULC)3 and compares growth in productivity to the changes in the cost of labor or wages. For a country or a firm to be competitive in the longer run it is important to insure that productivity grows faster than costs, and therefore ULC is<1 and lower than in the country with which we make comparisons. In other words, when comparing productivity levels and productivity growth rates between US and EU we will also have to use the ULC as a measure of competitiveness. As we may see, productivity superiority is not enough when cost factors (wages, currency appreciation, etc.,) eat up the surplus and, as a result, production or a particular product will lose price competitiveness when ULC>1 or higher than that of competitors.

Innovativeness, science and education levels are equally important factors of power and competitiveness of countries. We will measure innovativeness by the number of patents registered and implemented, and by the number of licenses generated by individuals and economic units.

The role of science will be measured by the R&D expenditures as a percent share of the GDP in both countries over time with an important distinction between the expenditures funded by the private and public sector. As most economists and experts admit, the proportion between these two sources of funding is 3

Unit labour cost is normally a micro concept. Here it is a macro concept, ie. the macro changes in unit labour cost divided by productivity growth.

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important because of its efficiency. Various statistics and research indicate that returns on investment for privately funded or co-funded projects are usually higher than public sector funded projects. We will compare the R&D expenditures nominal values, their share in the GDP, and the structure of R&D financing in US and EU. These factors will indicate the effectiveness and competitiveness of science in both countries. The number of Nobel Prize and other prestigious awards of international recognition will be also considered as measure of competitiveness of the US and EU (Bienkowski, Weresa, Radlo 2010).

Education is a critical factor determining growth and competitiveness especially in highly developed countries like US and EU where knowledge-based economies prevail. It determines the quality of human capital essential for technology diffusion and advancement. We will measure the importance of education by several indexes: the share of educated people in total population by levels of education, the scores/grades received by pupils and students, and by the number of college and university level graduates. As for higher education, we will examine university rankings, number of citations of the university faculty and quality of university research facilities (as measured in relation to science and innovation capacities). In this analysis we will concentrate on the results of world university rankings.

3.4.3. Mezzo and micro analysis The term mezzo level may refer either to regions or industries (and/or their branches). In this assessment we will concentrate mostly on the latter. For example, we will compare the strength and competitive positions of selected industries like chemistry, automobile industry, agricultural and food producing sectors. These segments of US and EU economies are especially important and sensitive in the TTIP negotiations as they play important roles in both economies. Possible developments and changes resulting from TTIP may have particularly important impact on the US and EU economies.

We will deepen the above assessment by analyzing Forbes 500 list to get a better grasp of the strength and technological position of particular corporations in the selected sectors. We will also conduct a separate sectoral analysis for agriculture and food products, transportation and logistics and related infrastructure activities.

With respect to micro level, we will concentrate on the institutional environment for developing small and medium enterprises (SME). We will compare the friendliness of government policies towards SMEs in US and EU. For this analysis, we will employ the World Bank methodology, as developed and applied in its annual “Business Reports” for the period of 2003–2014. These reports monitor and analyze business environment in 185 countries in the World. We will enrich

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these observations by comparing the results with similar research provided on an annual basis by the Freedom House, The Heritage Foundation, and the Fraser Institute. These comparative analyses will provide us with a better sense of the institutional environment, in US and EU. We will assess if the existing environment is conducive to entrepreneurship and SMEs development. We will evaluate if institutional arrangements enhance or hamper growth and competitiveness on mezzo and micro levels.

To compare the strength of the respective big corporations in selected sectors in EU and US we will examine the Forbes 500 biggest World corporations list. By doing this, we will find out and compare their current competitive position and assess how TTIP may impact their long-term capacities to compete in the global marketplace.

3.4.4. New approach to measuring international competitiveness We will be using a definition of country competitiveness consisting of three elements. These elements are usually mutually dependent and sequential. This definition indicates that that a given country can be considered competitive if: • It is capable of securing higher long-term GDP growth in comparison to its competitors, • It is successful during a period of GDP growth to change its economic structure in line with structural changes which are taking place in the leading developed countries, and which reflect technological advances and respond to new market needs, • Its exports structure evolves to closely follow and responds to the ever-changing international demand structure thus proving its ability to catch up with new World consumer needs (Bienkowski, 1995).

In this analysis the first two criteria, will be used in the initial phase of the assessment. The last criterion will also be used extensively later, because it better reflects, (as a final test) countries’ abilities to maintain their share of the growing and ever-changing global markets. This means that we will be checking the US and EU performance by analyzing their exports structure. We will concentrate on identifying commodities and products dominating their exports. We will also assess how their exports structure matches international demand. To provide the most accurate assessment we will concentrate on the dominant goods which are technologically most advanced or have a substantial high technology component.

This is because exports of such products grows faster than the World demand for other products. The ability to identify and follow trends in the fastest growing exports segments is a good proxy of the country international competitiveness.

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In our assessment of competitive position, we will employ the old but still valid Revealed Comparative Advantage (RCA) index4.

3.5.â&#x20AC;&#x192; US - EU economic strengths comparison 3.5.1.â&#x20AC;&#x192; Introduction This element of the analysis will focus on comparing data on macro proportions and macro performance for the US and EU in the period 1990-2014. Prior to addressing macro indicators of economic prowess and competitiveness, basic macroeconomic data reflecting the present economic strengths position of both TTIP partners will be assessed. This concerns their GDP growth and openness to the world economy illustrated by foreign trade magnitude and importance in 2014.

As demonstrated by the GDP data on Figure 3.1, the EU GDP measured in total current US$, was in 2014 slightly higher than the US GDP.

Billions

Figure 3.1: US-EU, GDP 2014, (current US$) 20,000

18,461

18,000

17,419

16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 European Union

United States

Source: World Bank, 2015

The total EU-28 population is larger than the US population. In 2014, the US population amounted to over 321 million and the EU population was about with 508 million. Taking this under consideration, the US per capita GDP was considerably higher compared to EU per capita GDP. The difference amounted to about 20,000 current international US$ (Figure 3.2).

4

â&#x20AC;&#x192;More information on RCA is provided further in this publication. We note that RCA index, developed by Professor Bella Bellasa, a Hungarian economist and professor at Johns Hopkins University; decades ago have been used extensively. Yet sometimes it has been used in error because the general formula was not sufficient to explain some specific cases and circumstances. For example, it has been used to assess socialists countries competitiveness which definitely have had based their specializations and therefore have structured their exports composition, not in accord with the prevailing market conditions but by allocating their production factors in economic sectors consistently with the strategic needs of the Communist Bloc defined based on political dictates. For a detailed analysis see: (Bienkowski 1988).

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Figure 3.2: US-EU, GDP per capita, 2014 (PPP, current international $) 60,000 50,000 40,000 30,000 20,000 10,000 0 European Union

United States

Source: World Bank, 2015

It is important to notice that in 2014 the US GDP was growing faster than the EU GDP respectively 2.4% and 1.3% (Figure 3.8). In a long-run evaluation this trend was similar. Data analysis indicates that the 2014 GDP growth performance is not much different from was it was in 1995.

With respect to international trade, data indicate similar situation as this described above for the GDP. EU has larger overall trade value but on a per capita basis the US significantly outperforms EU. For example, EU had higher exports in 2013 compared to the US, 2,326 billion US$ in EU and 1,577 billion US$ for the US. (Figure 3.3) whereas both EU and US imports reached similar level, 2,266 billion US$ for US and 2,243 billion US$ for EU. (Figure 3.4). A comparison of exports value with the GDP indicates that the globalization index, as measured by export plus import to GDP, shows greater EU openness to the world economy than the US â&#x20AC;&#x201C; 81% for EU and 30 % for the USA (Figure 3.5).

Billions

Figure 3.3: US - EU, Total exports, 2014 (US$ billions) 2,500

2,326

2,000 1,578 1,500 1,000 500 0 European Union

Source: Comtrade, 2015

United States

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Figure 3.4: US and EU, Total imports (US$ billions)

Source: Comtrade, 2015

Figure 3.5: US -EU, Openness to trade, 2013

Note: Measured by (export + import)/GDP Source: World Bank, 2015

The situation is different when we consider per capita data. In this case, the US again outperformed EU. The per capita based globalization index/export plus import to population size point to the US being more open to the world economy than EU (Figure 3.6).

Figure 3.6: US - EU, Openness to trade per capita, 2013 (US$)

Note: Measured as (export+import)/population Source: Comtrade, 2015

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The 2013 and 2014 data show that the US and EU economies are similar when measured by the size of the GDP. The EU exceeded the US in the total trade value, but per capita the US GDP and trade value were higher. The fact that the US had significantly higher GDP per capita in 2014 and its exposure to the world economy (globalization index), measured per capita reflect the US superiority over EU. 3.5.2.â&#x20AC;&#x192; US and EU macro proportions as measured by the magic quadrangle The magic quadrangle is an excellent macro performance and competitiveness (indirectly) measure because it illustrates a countryâ&#x20AC;&#x2122;s ability to achieve growth, preferably fast one, while achieving, simultaneously, other macro targets such as low inflation, low unemployment and/or positive jobs creation ability, and balanced payments or equilibrium in international transactions. Achieving all these targets simultaneously confirm the right choice in economic policy character and direction (Bienkowski 1995). The concept of the magic quadrangle methodology is shown in Figure 3.7.

Figure 3.7: Magic Quadrangle

When analyzing data on the GDP growth rates for the US and EU for the last 50 years, one can hardly find any period when the EU performed visibly better than USA, except during the late 60s and in the 70s of the last century. Since the economic program initiated by President Ronald Reagan (so called reaganomics) in the early 1980s until now, the US economy has exhibited higher GDP growth rates than the EU (Figure 3.8).

The most spectacular difference in the GDP rates of growth in favor of US took place in the 1980s when the economic policy, (reaganomics), was implemented, and during the 1990s when the positive effects of the Reagan tax and deregulation policies started to produce tangible results during (paradoxically) the Clinton democratic administration. The brief exception to this trend occurred during the financial crisis generated by the US subprime credit problems. The data presented

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in Figure 3.8 and Table 3.1 indicate, however, that the US economy recuperated fairly quickly from this crisis due to rapid application of efficient monetary policies. The EU measures were less intense and decisive, and were applied much later.

The EU result was therefore, much smaller and the crisis was felt in Europe for a longer period.

Figure 3.8: US-EU, GDP annual rates of growth (in percent) 8 6 4 2

2013

2011

2009

2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

1973

1971

1969

1967

1965

1963

1961

0 -2 -4 European Union

United States

-6

Source: World Bank, 2015

Table 3.1: 1996 EU US

1.99 3.80 2001

EU US

2.18 0.98 2007

EU US

3.08 1.78 2011

EU US

1.76 1.60

Source: World Bank, 2015

US-EU, GDP Rates of Growth, 1996-2014 (in percent) 1996 1.99 3.80 2002 1.31 1.79 2008 0.48 -0.29 2012 -0.49 2.32

1997 2.68 4.49 2003 1.47 2.81 2009 -4.41 -2.78 2013 0.12 2.22

1998 3.03 4.45 2004 2.51 3.79 2010 2.12 2.53 2014 1.29 2.39

1999 3.01 4.69 2005 2.05 3.35 Average 0.27 0.29 Average 0.67 2.13

2000 3.88 4.09 2006 3.42 2.67

Average 2.76 4.22 Average 2.15 2.56

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The next of the magic quadrangle indicators is the rate of inflation. Data on inflation, as observed during the last 18 years, is shown in Figure 3.9. They provide additional arguments on the US economic supremacy over EU. These data indicate that, for most of the time, inflation in the US was lower than in the EU. The only exception was periods 2004-2005 and 2011-2014. The difference seems to be insignificant ranging about 0.5 percent point in 2014 or less (Figure 3.9).

Figure 3.9: US-EU, Annual inflation rate, GDP deflator, 1996-2014 (in percent) 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 European Union

United States 2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

0.00

Source: World Bank, 2015

Figure 3.10: US-EU, Unemployment rate, 1991-2014 (in % of total labor force) 12.00

10.00

8.00

6.00

4.00

2.00 European Union

United States

Note: Estimated using the ILO methodology Source: World Bank, 2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

0.00

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The next magic quadrangle target is the rate of unemployment which also reflects the ability to create new jobs. The provided data clearly illustrate the US superiority over EU in combating unemployment. With an exception of a very short period in 2009 and 2010, the US had significantly lower unemployment than EU. This reflects better labor market flexibility and better ability of the US economy to create new jobs at the relatively fast growing population. The 2014 and 2015 US unemployment rates are below six percent which is roughly half of the EU unemployment rate (Figure 3.10).

When analyzing and comparing the US and EU labor markets, one should consider, in addition to the unemployment rates and their changes and the job creation ability, also some other indicators such as rates of male and female participation in the labor force, easiness and/or ability to work part time, participation of older people in labor market, and indicators illustrating working hours per year. Only taking such a holistic approach will allow astute researchers to fully understand labor market trends and assess the contribution of this factor to the GDP growth and ultimately a countryâ&#x20AC;&#x2122;s ability to achieve a particular GDP per capita level. The presented employment data indicate the US superiority with respect to labor force participation in the working age group (Figure 3.11). A similar conclusion transpires from a review of gender participation in the labor market (meaning the rate for female and male participation in the labor force) (Figure 3.11 and 3.12).

Figure 3.11: US-EU, Female participation in labor force, age 15-64, 2005-2012 (in %) 69.00 68.00 67.00 66.00 65.00 64.00 63.00 62.00 61.00

European Union

United States

Source: World Bank, 2015

2012

2011

2010

2009

2008

2007

2006

2005

60.00

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Figure 3.12: US-EU, Male participation in the labor force, age 15-64, 2005-2012 (in %) 81.00

80.00

79.00

78.00

77.00

76.00 European Union

United States 2012

2011

2010

2009

2008

2007

2006

2005

75.00

Source: World Bank, 2015

Figure 3.13: US-EU, Employment per capita, age 15 and more, 1991-2012 (in %) 70 60 50 40 30 20 10 European Union

United States 2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

0

Note: Estimated according the ILO methodology Source: World Bank, 2015

Another important indicator regarding efficiency of labor concerns working hours per year or per week. This indicator also clearly points to the US superiority.

As noted by the US Bureau of Labor Statistics Office (2010), the US workers worked 733 hours (five weeks) more than their EU counterparts. The US also has a higher senior participation rate (age category 54-64) as well as the participation rate of females in the labor force.

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Figure 3.14: US-EU, Labor participation rate, 2007

EU

0.51

USA

0.65

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Source: US Bureau of Labor Statistics, 2015

The last of the magic quadrangle indicators is the balance of payments. It is a very special measure because of its complex character. Balance of payment consists of the current account (exports and imports of goods and services plus net of interest or return on capital invested in by foreigners and out by locals), and the capital account. For the US, the current account has been negative since late 1970s, based on exports and imports of goods and services taken together (Bienkowski 1993). This is due to the fact that the US exports of goods do not match its imports of goods. Also, the US exports of services exceeded its imports of services. The US investment abroad has been and still is twice as big as foreign investments in the US (BieĹ&#x201E;kowski 1995).

It is however, not sufficient to compare only the US and EU trade deficit in goods as shown in WTO Statistics Data, 2014. Data indicate that the current account deficit has been for most of the time successfully covered by tremendous capital inflows into the US. This made the US current account deficit significantly less troublesome.

Additionally, the US dollar is a worldwide currency and reserve and/or a means of capital accumulation because it is still one of the most reliable and trusted currencies. This very fact has continuously created a stable high demand for the US dollar and contributed to reducing the impact of the current account deficit on the US economy (Figures 3.15 and 3.16).

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Figure 3.15: US current account balance, 2006-2014 (current US$)

Source: World Bank, 2015

Figure 3.16: US Foreign direct investments, net inflows, BoP (current US$)

Source: World Bank, 2015

The completed magic quadrangle assessment indicates the US economic long-term superiority over EU. All of the magic quadrangle indicators are in favor of the US: higher GDP growth rates during the last decades, lower inflation rates, and higher ability to generate new jobs, and better utilization of the labor force.

The assessment of trends in the US balance of payments and its long-run equilibrium confirm its better economic situation and a superior competitive posture.

Without a strong, relatively fast growing, and efficient economy, the US balance of payments could be a problem. In the current situation, as transpiring from the above analysis it is not. Although the EU is one of the strongest World economies, in comparison with the US it is still growing significantly slower. The signing of a balanced and well-designed TTIP agreement may improve the EUâ&#x20AC;&#x2122;s economic growth patterns and its overall global competitiveness.

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3.5.3. Sectoral productivity, innovativeness, science, and education The assessment of trends in sectoral productivity, innovativeness, science, and education has been undertaken to provide additional information to compare strengths, effectiveness and, competitiveness of the US and EU economies.

With regard to productivity and its growth, as indicated in the preceding chapters, there has been a visible superiority of the US economy over the EU economy for more than 20 years. The magic quadrangle analysis strongly confirmed this notion.

The data provided earlier indicate that the productivity gap between the US and EU has widened after 1995. This, to some extent, explains why EU leaders have tried in the recent years to create a number of programs stimulating economic growth and faster economic development. The Lisbon Strategy created in the year 2000, an economic development Europe 2020 strategy, and a number of its derivatives presented in 2010 and after. It has not been fully effective to make EU a more productive and fast growing as it was named “knowledge based economy”. As declared by the EU leadership in the Lisbon Strategy documents, EU was supposed to become “the most competitive economic area in the world by the year 2010” (The Lisbon Strategy 2000). The completed analysis and presented data indicate that the EU leadership’s dream has remained so far to be a dream only. TTIP may become an important tool for spearheading faster economic growth and development in the US and EU. Economic gains from this agreement are undisputed and closer cooperation may result in mutual benefits for the TTIP partners. EU has lots to gain from closer economic relations with the Unites States. We will address these issues in the following chapters.

Thousands

Figure 3.17: US and EU, GDP per person employed, 1991-2012 (constant 1990 PPP US$) 80 70 60 50 40 30 20 10

European Union

United States

Source: World Bank, 2015

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

0

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% of US labour productivity

Figure 3.18: EU-15 productivity in GDP per hour worked as a percent of the US productivity, 1950-2013 90 80 70 60 50 40 30 20

EU 15

2010

2000

1990

1980

1970

1960

1950

10

Note 1: GDP measured per hour worked in Geary/Khamis dollars, US=100.

Note 2: The Gearyâ&#x20AC;&#x201C;Khamis dollar is, more commonly known as the international dollar is a hypothetical unit of currency that has the same purchasing power parity that the US dollar had in the United States at a given point in time.

Source: US Bureau of Labor Statistics, 2015

Other indicators of economic strength and competitiveness, such as innovativeness and entrepreneurship, confirm the EU competitiveness problems. Data presented in Figure 3.19 on innovation, measured by research and development expenditures compared to the GDP indicate that the US expends more funds for R&D than the EU. Figure 3.19: US and EU, Research and development expenditures (% of GDP) 3.00 2.50

2.00 1.50 1.00

0.50

European Union

United States

Source: World Bank, 2015

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

0.00

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What is more critically important for measuring efficiency and/or competitiveness is that the US expenditures on R&D are not only higher, but also differing from the EU expenditures as to their composition with respect to sources of financing. In the US, the private sector financing of R&D activities is relatively larger than in the EU. This may imply higher returns on investment because private investors usually expect quicker and higher returns than the public sector.

Figure 3.20: USâ&#x20AC;&#x201C;EU, R&D expenditures as a % of GDP by sources of funding, 2014 3.0 Publ i c s ector

Pri va te s ector

2.5 2.0 1.5 1.0 0.5 0.0 Europea n Uni on

Uni ted Sta tes

Source: US Bureau of Labor Statistics, 2015

Data on the number of registered and applied patents provide additional input to the competitiveness assessment. Over the last decades, the US is far ahead of the EU in this respect (Figure 3.21). It can also be observed that the gap between the US and the EU has been growing since the mid-1960s with a visible acceleration of this trend in the last 20 years. In sum, based on the provided data we may conclude that the EUâ&#x20AC;&#x2122;s ability to generate innovation, as represented by the number of patents and licenses, has been smaller than in the US in recent years. All this confirms the lower effectiveness of the EUâ&#x20AC;&#x2122;s declared and implemented R&D policies and activities. A comparison of the declarations and implementation aspects is very important. Although optimistic programs and strategies were announced, not all of the EU objectives have been achieved. For example, The Lisbon Strategy assumed that the EU R&D expenditures will amount to 3.5 of the GDP by 2010 (The Lisbon Strategy, 2000). This has not yet been achieved which may indicate difficulties in implementing the ambitious measures to support innovation. The presented overview indicates that the EU R&D development efforts are less effective and competitive than similar activities undertaken by the US.

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Figure 3.21: US-EU, Number of patent applications, 1963-2013 200% 180% 160% 140% 120% 100% 80% 60% 40% European Union

20%

United States

2013

2011

2009

2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

1973

1971

1969

1967

1965

1963

0%

Source: World Bank, 2015

The quality and competitiveness of the business environment and entrepreneurial spirit of the population are additional factors illustrating the global competitiveness and strengths of particular countries. Several international ratings of business environment are prepared annually by a number of renowned institutions such as: the World Bank, The Intelligence Unit of the Economist, and other specialized agencies. For example, the Economist Business Environment Report indicated that in 2009 and 2014, the US created more competitive environment for doing business than all EU except for Sweden. The data presented in Table 3.2 indicate also that the gap between the US and the EU has widened in the 2009-2014 period. Further liberalization of trade and investment between these countries may contribute to reducing this difference.

Table 3.2: Country Singapore Switzerland Hong Kong Canada Australia Sweden USA New Zealand Finland Denmark Norway Germany

Business environment ranking, 2009-2014

Score 2009-13* 8.56 8.41 8.34 8.15 8.18 8.20 8.02 7.99 8.16 8.01 7.89 7.99

Global ranking 2009-13 1 2 3 7 5 4 8 11 6 9 13 10

Score 2014-18* 8.65 8.52 8.39 8.30 8.29 8.26 8.25 8.18 8.18 8.16 8.01 7.98

Global ranking 2014-18 1 2 3 4 5 6 7 8 9 10 11 12

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Score 2009-13*

Global ranking 2009-13

7.81 7.68 7.30 7.94 7.69 7.61 7.15 7.17 7.29 7.41 7.19 7.47

14 16 20 12 15 17 24 23 21 19 22 18

Score 2014-18* 7.89 7.85 7.79 7.78 7.69 7.62 7.56 7.50 7.46 7.44 7.38 7.38

Global ranking 2014-18 13 14 15 16 17 18 19 20 21 22 23 24

Source: The Economist Intelligence Unit, Business Environment Ranking, Which country is best to do business in?, 2014

The entrepreneurial mindset has been periodically evaluated by the US Bureau of Statistics, which provides statistics in categories listed in Figure 3.22. A comparison of the entrepreneurial mindset represented as a percent of adult population involved in particular business activities, shows that the US population is more entrepreneurial than the EU population. This conclusion is supported by data on all considered economic activities such as: starting new business, promoting innovation, and the undertake investments with higher risk ratios (Figure 3.22).

Figure 3.22: US-EU, Entrepreneurial mindset, 2007 (% of adult population)

Source: U.S. Bureau of Labor Statistics, 2011

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The Index of Economic Freedom is an annual index and ranking created by The Heritage Foundation and The Wall Street Journal in 1995 that measures the degree of economic freedom in the world’s nations. The creators of the index took an approach similar to Adam Smith’s in The Wealth of Nations that „basic institutions that protect the liberty of individuals to pursue their own economic interests result in greater prosperity for the larger society”. The Index’s 2008 definition of economic freedom is „the highest form of economic freedom provides an absolute right of property ownership, fully realized freedoms of movement for labor, capital, and goods, and an absolute absence of coercion or constraint of economic liberty beyond the extent necessary for citizens to protect and maintain liberty itself.” The index scores nations on ten factors of economic freedom, separated into four categories, using statistics from organizations like the World Bank, the International Monetary Fund, Economist Intelligence Unit and Transparency International. In each factor, countries are scored 0 to 100, with 0 being the least free and 100 the most free. A score of 100 signifies an economic environment or set of policies that is most conducive to economic freedom5. The 2015 Index of Economic Freedom indicates that the United States scores higher than almost all EU member-states.

Its environment for conducting business is much more conducive to conducting business and economic freedom.

Table 3.3: Country Name Austria Belgium Bulgaria Croatia Cyprus Czech Republic Denmark Estonia Finland France Germany Hungary Ireland Italy Latvia 5

Index of economic freedom, 2015

World Rank

Change (2014=100%)

Score 30 40 55 81 45 24 11 8 19 73 16 54 9 80 37

71.2 68.8 66.8 61.5 67.9 72.5 76.3 76.8 73.4 62.5 73.8 66.8 76.6 61.7 69.7

-1.2 -1.1 1.1 1.1 0.3 0.3 0.2 0.9 0.0 -1.0 0.4 -0.2 0.4 0.8 1.0

„Executive Summary” (PDF). Index of Economic Freedom. 15 January 2008. Retrieved 4 February 2008; and William Beach, Time Kane (15 January 2008). „Methodology; Measuring the 10 Economic Freedoms” (PDF). Index of Economic Freedom. Retrieved 4 February 2008; and Wikipedia, https:// en.wikipedia.org/wiki/Index_of_Economic_Freedom#2014.

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World Rank

Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovak Republic Slovenia Spain Sweden United Kingdom United States European Union

Change (2014=100%)

Score 15 21 58 17 42 64 57 50 88 49 23 13 12 40

74.7 73.2 66.5 73.7 68.6 65.3 66.6 67.2 60.3 67.6 72.7 75.8 76.2 70

1.7 -1.0 0.1 -0.5 1.6 1.8 1.1 0.8 -2.4 0.4 -0.4 0.9 0.7 0.26

Source: Heritage Foundation, 2015. (A detailed scoring is provided at: https://www.gfmag.com/ global-data/economic-data/economic-freedom-by-country?page=2)

The quality of education is another important indicator showing economic strength and reflecting competitiveness of a given state. This in particular concerns the quality of university education systems. The quality of education directly impacts the quality and availability of high skilled labor force. In the current marketplace, a steady supply of highly skilled labor contributes to the abilities of any country to better absorb and use know-how, and generate and implement new technologies. This is especially important in the case of developed countries like the US and the EU member-states which to a large extend base their competitive edge on the development of new technologies and innovative solutions. To measure these factors we referred to several prestigious university rankings prepared by such rating agencies as: The Shanghai Academic Ranking, The Times University Ranking based on Thompson Reuters data, and The QS World University Rankings (Table 3.4) Table 3.4:

US and EU university rankings, 2015

Shanghai Academic Ranking of World Universities 2015 US EU

0-49 (N)

Average score

50-99 (N)

Average score

31 12

21.3 32.8

16 16

73.9 75

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US EU

0-49 (N)

Average score

50-99 (N)

Average score

25 13

21.1 25.1

14 25

73.9 77.6

QS world university rankings US EU

0-49 (N)

Average score

50-99 (N)

Average score

18 12

19.8 23.3

12 22

74.7 76

Note: 0-49 (N) represents the number of US and EU universities in the top 49 universities, the average score is derived by dividing a sum of all scores of universities from a given region by the number of universities. Other data have been developed according to the same scheme.

Sources: The Shanghai Academic Ranking of World Universities, 2015; The World University Ranking, 2015; The QS World University Ranking, 2015

An average score for the US and the EU is calculated by summarizing ranking positions of all listed universities, respectively, and next dividing them by the total number of institutions from these regions. The highest US universities ranking is not surprising. The US universities for many years have been considered to be the best World higher education institutions. The quality of the US university system reflects intensive competition among many private and public institutions, significant research stimulating role of private schools, and continuous and consequent public support for the entire education system starting from primary schools and ending on universities (Brada 2012). This last conclusion is supported by the data presented in Figure 3.23 which indicate that the US expenditures on all levels of education are higher than these of the EU countries and Japan.

Figure 3.23: US, EU and Japan, Total public education expenditures per student, 2006 (equivalent US$ converted using PPPs) 25000 United States

Japan

European Union

20000

15000

10000

5000

0 Pre-primary

Primary

Note: Data are for all levels of education systems.

Source: OECD, 2011

Lower secondary

Upper secondary

Tertiary

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The effective US education policies provide a basis for its World leadership in the number of university graduates per capita. (Figure 3.24) The highest quality of the US education system is also reflected by the number of research prizes awarded to the US scientists (for example the Nobel Prize), and the number of patents and licenses for new technologies and solutions. Below we will concentrate on the Nobel Prize recipients as an indicator of the advancement and quality of science.

Figure 3.5 shows data on the number of Nobel Prize awards for the US and EU-28 in 2013, in nominal and per capita numbers bases and other symbols and indicators of science and technological progress (Table 3.5).

Figure 3.24: University graduates per capita, age group 25-64, 2013 (in %) 50 45 40 35 30 25 20 15 10 5

United States

Ireland

United Kingdom

Luxembourg

Estonia

Finland

Sweden

Belgium

Denmark

Spain

Netherlands

OECD - Average

Latvia

France

Germany

Greece

Slovenia

Poland

Hungary

Austria

Czech Republic

Slovak Republic

Italy

Portugal

0

Source OECD, 2015

Table 3.5:

US EU-28

US-EU, Nobel Prize Recipients

Nobel Prize Recipients

Population (2013)

Nobel Prize Recipients per 10 million inhabitants

319 462

320,050,716 509,472,390

9.967 9.068

Note: Nobel Prize recipients as of October 7, 2015 Source: World Bank, 2015

Before the World War II, countries which later became EU-15 accounted for the majority of the Nobel Prize recipients. (Between 1901 and 2013, the Nobel Prizes and the Prize in Economic Sciences were awarded 561 times to 876 people and organizations. With some receiving the Nobel Prize more than once, this makes

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a total of 847 individuals and 22 organizations.). This situation has changed since 1950s when the US started dominating these awards. In the later years, the US-EU gap has significantly widened which indicates faster growth of education, research and innovation in the US than in the EU. (Figure 3.25).

Figure 3.25: US, EU-15, Japan, Nobel Prize recipients in sciences, 1900-2013 (in %) 100 United States

90

EU 15

Japan

80 70 60 50 40 30 20 10

2010/13

2000/10

1990/00

1980/90

1970/80

1960/70

1950/60

1940/50

1930/40

1920/30

1910/20

1900/10

0

Source: Nobel Foundation Data, 2015

3.6.â&#x20AC;&#x192; Mezzo and micro level assessment 3.6.1.â&#x20AC;&#x192; Introduction The mezzo and micro evaluation and comparison of the US and the EU economic strengths, effectiveness and competitiveness will be carried out based on: a) data on the role of large US and EU corporations in the World economy (individually and by selected sectors) using the Forbes 500 company rating (mezzo assessment), and b) the assessment of small and medium enterprises (SME) in the TTIP partners (micro assessment). Subsequently, the evaluation will be enriched by an overview of institutional environments and an identification of which business development systems, the US or the EU, are more conducive to developing business activities. These objectives will be attained by examining friendliness of institutional environments and easiness of conducting SMEs activities as defined in the World Bank evaluation methodology used since 2003.

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3.6.2.â&#x20AC;&#x192; Mezzo assessment The data published by Forbes indicate that in 2014, 37 US and only 22 EU companies were listed among the 100 largest corporations of the World. These data indicate that the US companies were listed closer to the top of this list while the EU largest business were listed lower in the classification. The total value of assets of the largest US companies listed in the top 100 of the Forbes classification was larger than the EU companies, and amounted to about 15,882 and 12,378 billion, respectively (Table 3.6).

Table 3.6:

US-EU, Number and asset value of companies among 100 largest World establishments, 2014 Number of companies in Top-100

Average score

Total assets (in billions)

37 22

50.8 51.8

$15,882 $12,378

USA EU Source: Forbes, 2015

The assessment of data on the value of the US and EU companies by selected sectors of national economies indicate a number of interesting trends. In 2014, the EU companies dominated: a) banking and finance sector, in this sector the EU assets amounted to over 16,584 B US$ and the US only 9,660 B US$, b) broadcasting sector, the EU assets were 159 B US$ and the US only 87 B US$, c) auto & truck manufacturing, the EU asset value reached over 841 B US$ compared to 386 B US$ for the USA). The US companies have a dominating share in other sectors such as: oil, gas, petrol and energy; IT, Connection, Software and Hardware; Aircrafts; Food and beverages; Retail shops; Insurance; and Chemicals (Table 3.7).

Table 3.7:

US â&#x20AC;&#x201C;EU, Biggest companies in Top-100 by industry, 2014 (in number and assets value) EU number

Banking and Finance Oil, gas, petrol, Energy IT, Connection, Software, Hardware Broadcasting Auto & Truck Manufacturers Aircraft Food and Beverages Retail shops

US assets

number

assets

4 6 3

16584.04 1539.8 488.6

6 10 5

9660.7 2576.49 777.29

1 3 1 1

159,3 841.55 144.89 74.25

1 2 1 2 1

87 386.2 90.2 162.5 203.7

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Pharmaceutical Insurance Chemicals

2 1

US assets 628.71 90.2

number 4 4 1

assets 1254.9 2483.32 136.3

Note: Assets value in US$ billions.

Source: Forbes, 2015

3.6.3.â&#x20AC;&#x192; Micro assessment An evaluation of business environment for small and medium size companies (SME) provides an interesting and important input to the competitiveness evaluation of the US and the EU economies. This is because small and medium companies are a core of the US and EU economies and produce a significant portion of their value added. The below evaluation is based on the World Bank Doing Business Reports which has been published since 2003. The World Bank business environment assessment approach takes under consideration such indicators as: the ability to obtain credit; access to electricity; easiness and cost of business-related permits (international trade license, construction permits, etc.). The World Bank data presented in Table 3.8 indicate that the US provides much friendly institutional conditions to conduct SME business compared to the EU countries. In 2014, the US was ranked the seventh most-friendly country for small and medium size business development in the World, while all the EU countries were ranked lower. The data presented in Figure 1.26 provide additional information confirming the US higher competitiveness in developing small and medium size business.

Table 3.8:

USâ&#x20AC;&#x201C;EU, Friendliness of business environment for SMEs, 2014 Country

USA Sweden Ireland Germany Latvia Lithuania Portugal Netherlands France Poland Spain Slovak Republic

Rank 7 11 13 15 23 24 25 27 31 32 33 37

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Country

Rank

Bulgaria Belgium Czech Republic Romania Slovenia Hungary Italy Luxembourg Cyprus Croatia

38 42 44 48 51 54 56 59 64 65

Source: World Bank, Doing Business, 2015

Figure 3.26: US-EU, Friendliness of business environment by activities, 2008-2015 30 25

Ease of Doing Business Rank 100 Starting a Business 80

Resolving Insolvency

20

60 Enforcing Contracts

15

Dealing with Construction Permits

40 20 0

10

Trading Across Borders

5

Getting Electricity

Paying Taxes

0

Registering Property

Protecting Minority Investors

United States

Getting Credit

European Union

Doing Business (Total ranking 2015)

United States (2015)

European Union (2015)

Doing Business (Total ranking 2008)

Source: World Bank, Doing Business, 2015

3.7.â&#x20AC;&#x192; US-EU, Assessment of international competitiveness As indicated earlier in this publication, international competitiveness may be measured by the revealed comparative advantage (RCA). It is an index used in international economics for calculating the relative advantage or disadvantage of a certain country in a certain class of goods or services as evidenced by trade flows.

It is based on the Ricardian comparative advantage concept, and is most commonly

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referred to as an index introduced by Béla Balassa (1965). The RCA index is calculated according to the following formula: RCA = (Eij / Eit) / (Enj / Ent), where: E – exports, i – country index, n – set of countries, j-commodity index, t – set of commodities.

The RCA is equal to the proportion of the country’s exports that are of the class under consideration (Eij / Eit) divided by the proportion of world exports that are of that class (Enj / Ent). A comparative advantage is “revealed” if RCA > 1. If RCA is less than unity, the country is said to have a comparative disadvantage in the commodity or industry. The concept of Revealed Comparative Advantage is similar to that of Economic Base Theory. This theory involves the same calculation as RCA, but considers employment rather than exports. As an example, in 2015 commodity X represented 0.5 percent of world trade with exports of $50 billion. Country A exported $25 billion of X. The total exports of A were $200 billion, so commodity X accounted for 12.5 percent of A’s exports. Then 12.5/0.5 = 25 which indicates that country A has a high revealed comparative advantage in X, since it exports 25 times of its fair share of the world exports of X. The commodity structure of the World demand continuously changes from low-tech to high-tech goods (in terms of the percent of the total world trade). We compare the US and the EU exports structures with the World high-tech trade and identify which partner has a larger RCA in high-tech sectors. This will indicate the US and EU abilities to respond to the changing world demand and provide a basis for indicating which TTIP partner is better prepared to compete internationally.

For this analysis of the international competitiveness of the US and EU economies we will apply a two-step procedure. The first step involves identifying and evaluating the US and EU export specializations as measured by the Revealed Comparative Advantage (RCA) index. To achieve this commodities with RCA>1 will be selected. The second step will involve relating the RCA to exports structure (with reference to technological content and value added). The high-tech commodities are selected from Standard International Trade Classification (SITC) revision 4. The list of high-technology commodities was developed using the OECD 2004 methodology (OECD, 2005). It contains products with high content of R&D costs in their total value. A list of these commodities is provided in Table 3.9.

TTIP - The 21st Century Agreement Group Aerospace

Computers office

Machines Electronicstelecommunications

Pharmacy

Scientific

Instruments

Code

105 Title

(714-714.89-714.99)+ Aeroplane motors, excluding 714.89 and 714.99 792.1+ Helicopters 792.2+792.3+792.4+ Aeroplanes and other aircraft, mechanically-propelled (other than helicopters) 792.5+ Spacecraft (including satellites) and spacecraft launch vehicles 792.91+ Propellers and rotors and parts thereof 792.93+ Undercarriages and parts thereof 874.11 Direction finding compasses; other navigational instruments and appliances 751.94+ Multifunction office machines, capable of connecting to a computer or a network 751.95+ Other office machines, capable of connecting to computer or a network 752+ Computers 759.97 Parts and accessories of group 752 763.31+ Sound recording or reproducing apparatus operated by coins, bank cards, etc.

763.8+ Video apparatus (764-764.93-764.99)+ Telecommunications equipment, excluding 764.93 and 764.99 772.2+ Printed circuits 772.61+ Electrical boards and consoles < 1000V 773.18+ Optical fibre cables 776.25+ Microwave tubes 776.27+ Other valves and tubes 776.3+ Semiconductor devices 776.4+ Electronic integrated circuits 776.8+ Piezoelectric crystals 898.44+ Optical media 898.46 Semiconductor media 541.3+ Antibiotics 541.5+ Hormones and their derivatives 541.6+ Glycosides, glands, antisera, vaccines 542.1+ Medicaments containing antibiotics or derivatives thereof 542.2 Medicaments containing hormones or other products of subgroup 541.5 774+ Electrodiagnostic apparatus for medicine or surgery and radiological apparatus 871+ Optical instruments and apparatus 872.11+ Dental drill engines (874-874.11-874.2)+ Measuring instruments and apparatus, excluding 874.11, 874.2 881.11+ Photographiccameras 881.21+ Cinematographic cameras 884.11+ Contact lenses

106 Group

Electrical

Machinery Chemistry

Non-electrical

CHAPTER 3 Code

Title

884.19+ Optical fibres other than those of heading 773.1 (899.6-899.65-899.69) Orthopedicsappliances, excluding 899.65, 899.69 (778.6-778.61-778.66- Electrical capacitors, fixed, variable or adjustable, excluding 778.61, 778.66, 778.69)+ 778.69 778.7+ Electrical machines, having individual functions 778.84 Electric sound or visual signaling apparatus 522.22+ Selenium, tellurium, phosphorus, arsenic and boron 522.23+ Silicon 522.29+ Calcium, strontium and barium 522.69+ Otherinorganicbases 525+ Radioactive materials 531+ Synthetic organic colouring matter and colour lakes 574.33+ Polyethylene terephthalate 591 Insecticides, disinfectants 714.89+ Other gas turbines 714.99+ 718.7+ 728.47+ 731.1+

Machinery

731.31+ 731.35+ 731.42+ 731.44+ 731.51+ 731.53+ 731.61+ 731.63+ 731.65+ 733.12+ 733.14+ 733.16+ 735.9+ 737.33+ 737.35

Armament

891

Part of gasturbines Nuclear reactors and parts thereof, fuel elements, etc.

Machinery and apparatus for isotopic separation Machine-tools working by laser or other light or photon beam, etc Horizontal lathes, numerically controlled Other lathes, numerically controlled Other drilling machines, numerically controlled Other boring-milling machines, numerically controlled Milling machines, knee-type, numerically controlled Other milling machines, numerically controlled Flat-surface grinding machines, numerically controlled Other grinding machines, numerically controlled Sharpening machines, numerically controlled Bending, folding, straightening or flattening machines, numerically controlled Shearing machines, numerically controlled Punching machines, numerically controlled Parts and accessories of 731 and 733 Machines and apparatus for resistance welding of metal, fully or partly automatic Machines and apparatus for arc welding of metal, fully or partly automatic Arms and ammunition

Note: Some commodity names have been abbreviated. For full description see: http://unstats.un.org/ unsd/cr/registry.

Source: OECD

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Table 3.10 provides a comparison of the RCA for the US and EU for the selected high-tech nine commodity groups. The presented data indicate that US have been and still are more competitive in seven out of nine groups. This is indicated by a higher RCA. (We obviously consider only commodities for which RCA>1) The US has especially high competitive advantage in the aircraft products with a RCA equal to 11.40. The EU RCA for these commodities is only 4.61. This disparity has increased in the recent years. Similarly, the US has a significant international competitive advantage in computer office machines with the 2007 RCA equal to 1.22 against 0.53 for the EU, and 1.33 versus 0.50 in 2013 respectively. The US also enjoyed an international comparative superiority in electronic-telecommunications, armaments, chemicals, scientific instruments, and electrical machinery.

The only two categories where the EU has had bigger RCA than the US were non electrical machinery and pharmaceutical products (for which the EU international competitiveness has been for many years significantly higher) (Table 3.10).

In conclusion, the US has a significant international competitive advantage over the EU in the majority of high-tech commodities. This is a permanent trend which has been noticed for many years. Opening trade and investment may contribute to narrowing this gap and lead to mutually beneficial economic relations and joint activities in the high-tech sectors.

Table 3.9: 2007

US-EU, RCA for high-tech commodities by sectors, 2007-2013 2008

2009

2010

2011

2012

2013

Aircraft EU 1.14 1.47 US 4.64 5.10 Computer office machines EU 0.52 0.53 US 1.22 1.25 Electronics-Telecommunications EU 0.71 1.36 US 1.43 2.71 Pharmacy EU 2.22 2.17 US 0.78 0.86 Scientific instruments EU 1.28 1.36 US 2.07 2.20 Electrical machinery EU 0.77 0.66 US 1.43 3.12 Chemistry EU 1.41 1.23

1.44 6.04

1.45 6.05

1.38 6.24

4.93 12.36

4.38 11.40

0.48 1.17

0.42 1.10

0.43 1.22

0.56 1.47

0.50 1.33

0.64 1.44

0.68 1.38

0.63 1.40

1.17 1.25

0.73 1.23

2.02 0.94

2.10 0.83

2.28 0.60

2.39 0.51

2.20 0.53

1.23 2.07

2.17 3.35

1.28 1.95

1.21 1.73

2.15 2.96

0.68 1.17

0.65 1.11

0.66 1.17

0.62 1.12

0.60 1.03

1.41

1.38

1.29

1.36

1.13

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US 1.71 Non-electric machinery EU 1.61 US 2.25 Armament EU 1.48 US 5.32

2008

2009

2010

2011

2012

2013

1.67

1.83

1.69

1.58

1.38

1.24

1.86 2.33

2.07 2.37

2.19 2.23

2.06 2.13

2.12 1.95

2.22 1.97

1.10 5.10

1.58 5.25

1.39 5.62

1.73 5.96

1.57 5.26

1.81 5.48

Note: High-tech commodities identified using the OECD 2004 methodology as in SITC Rev.4. This methodology has been also used by Eurostat.

Source: Comtrade, 2015

3.8.â&#x20AC;&#x192; US-EU, The results of the economic and competitive assessment This chapter identified and compared economic power and international competitiveness of the TTIP partners. The assessment was completed by using macro, mezzo, and micro approaches and indicators. The overall economic position of the US and EU, their strengths and competitive postures were presented. This effort has an important meaning for the evaluation of the potential impact of the identified differences in economic situation and international competitiveness between the US and EU on the negotiations and final outcomes of the TTIP. The assessment revealed the USâ&#x20AC;&#x2122;s economic superiority over the EU on most counts such as the rate of GDP growth over the long period, the unemployment and inflation rates, and abilities to create new jobs. The US superiority is an outcome of its better performance in technological developments, higher market flexibility, entrepreneurial spirit, and better quality of its university education. These US advantages, compared to the EU, have been increasing since the 1980s, and consequently; the competitive gap between the TTIP partners has also increased.

All this suggests two things. The US seems to be better positioned for the TTIP negotiations having stronger and more competitive economy especially in several sectors of the national economy like high-tech goods, and in relation to business environment for big, corporations, and SMEs. The differences in economic strength may have an impact on gains from the TTIP agreement. It is, however, important to note that economic theories and recent research and analyses indicate that the stronger partner does not necessarily has to gain more than a weaker partner from negotiating and implementing trade agreements.

On the other hand, since the analysis proved the USâ&#x20AC;&#x2122; economic superiority and better economic performance, this may lead to a conclusion that the US most

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probably could better survive in the global competitive environment without TTIP than the EU. The US and EU economies are critically important elements of the World economy. In the current international marketplace and still deepening globalization processes even the strongest economies should use all possible opportunities to remain competitive and defend or increase their competitive position. The US and EU must compete in the World marketplace against many other countries who strive to increase their share in international trade and investment such as China, Taiwan, South Korea, India, etc. These countries use various mechanisms of regional cooperation to boost their competitiveness and accelerate economic growth. A good example is the Trans-Pacific Partnership (TPP), a trade agreement among twelve Pacific Rim countries signed on February 4, 2016 in Auckland, New Zealand, after seven years of negotiations. To maintain their leadership in the World economy the US and the EU must do the same. These are the economies which can effectively cooperate to increase their potential and defend their international leadership. Although there are some differences in their economic, educational and social advancement they are fully compatible and should both profit from reducing non-tariff limitations to trade and investment, and expanding joint research and innovation activities and relationships. Some more critical and radical sources indicate that a delay in negotiating TTIP may be more disturbing and dangerous for the EU than for the US. They indicate that if this trade and investment agreement is not reached and implemented, given the negative competitive tendencies for the EU observed over the last 20 years, documented also in this publication, Europe may continue to lose its competitive advantages, and; in the worst case scenario, become in a long run a periphery of the World economic growth and progress. They reason that reaching this agreement may help the EU to slow down and maybe even reverse the negative economic and competitive trends.

3.9. References [1].

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[6].

Balassa, B., (1965), Trade Liberalisation and Revealed Comparative Advantage, The Manchester School.

Beach, W., Kane, T. (2008). „Methodology; Measuring the 10 Economic Freedoms” (PDF). Index of Economic Freedom. Retrieved 4 February 2008 Bienkowski, W., (1988) The Applicability of Western Measurement Methods to Assess East European Competitiveness in: W., Moskoff, Comparative economic studies, 1st ed. Lake Forest: Association for Comparative Economic Studies Employers’ Group Bienkowski, W., (1993) Oddzialywanie Rzadu USA na rozwoj zdolności konkurencyjnej gospodarki amerykańskiej w latach 1981-1988, Monografie i opracowanie nr. 378, 1st ed. Szkoła Główna Handlow, Warszawa 1993: Bienkowski, W., (1995) Reaganomika i jej wplyw na konkurencyjnosc gospodarki amerykańskiej, 1st ed. Warszawa: Wydawnictwo Naukowe PWN .

Bienkowski, W., Brada, J. C., Radlo, M., (2006) Reagonomics goes global. 1st ed. Hampshire: Palgrave Macmillian

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[7].

Bienkowski, W., Brada, J. C., Radlo, M., (2008) Growth versus Security, 1st ed. London: Palgrave Macmillian Bienkowski, W., Weresa, M. A., Radlo M., (2010) Konkurencyjność Polski na tle zmian gospodarczych w krajach OECD, 1st ed. Warszawa: Szkoła Główna Handlowa Brada, J.C., (2012) An Economic Perspective on Higher Education in: the USA in W. Bienkowski, J.C. Brada, G. Stanley The University in the Age of Globalization Rankings, Resources and Reforms, Palgrave Macmillan Eurostat: http://ec.europa.eu/eurostat/cache/metadata/Annexes/htec_esms_an5.pdf Executive Summary (PDF). Index of Economic Freedom. 15 January 2008. Retrieved 4 February 2008 Fajgelbaum, P., Khandelwal A., (2014) Measuring the Unequal Gains from Trade, NBER Working Paper No. 20331 Forbes: http://www.forbes.com/global2000/list/ Heritage Foundation: http://www.heritage.org/index/explore Landreth H., Colander D.C., (2002) History of Economic Thought, 4th edition, Boston: Houghton Mifflin (also previous editions) Mill, J.S., (1909), first published 1848 Principles of Political Economy with some of their Applications to Social Philosophy, 7th edition 1909, London; Longmans, Green and Co. Nobel Foundation: http://www.nobelprize.org/nobel_prizes/lists/all/ OECD: https://data.oecd.org/ OECD Factbook 2005 Economic, Environmental and Social Statistics: Economic, Environmental and Social Statistics (2005), OECD Publishing QS World University Ranking: http://www.topuniversities.com/subject-rankings/2015 Shanghai Ranking: http://www.shanghairanking.com/ARWU2015.html Summary of the debate that took place in Malta on the 9 March 2015 The Economist. Intelligence Unit: 2011 The Lisbon Strategy, 2000 The Malta EU Ecosoc Communiqué, 9 March 2015 Times World University Ranking: https://www.timeshighereducation.com/world-university-rankings/2016/world-ranking#!/page/0/length/25 UN Comtrade Database: http://comtrade.un.org/data/ US Bureau of Labor Statistics: http://www.bls.gov/data/ Wikipedia (2014), https://en.wikipedia.org/wiki/Index_of_Economic_Freedom#2014.

World Bank Database: http://data.worldbank.org/ Wujcic B., (2015) Boosting EU competitiveness Contribution to Growth - The Role of the CESEE Countries, Conference on Boosting EU Competitiveness – The Role of the CESEE Countries, Warsaw

[8].

[9].

[10].

[11].

[12].

[13].

[14].

[15].

[16].

[17].

[18].

[19].

[20].

[21].

[22].

[23].

[24].

[25].

[26].

[27].

[28].

[29].

[30].

[31].

CHAPTER 4

Accommodating TTIP induced trade growth - The containerized maritime trade case 4.1.â&#x20AC;&#x192; Background The negotiations of TTIP concentrate currently on agreeing on and providing a legal framework for increasing trade and investments between the US and European Union. During the eleven negotiations rounds completed by December 2015, various legal and institutional issues were addressed. A number of studies and reports on economic impact of the proposed agreement indicate significant opportunities for increased trade. Although the rates of the projected growth differ significantly among the sources, one thing is certain, trade flows will increase.

More cargo will be shipped and passengers travel between both continents will increase. It is therefore worth asking and assessing if these increased trade and travel flows can be accommodated by the current and projected transport services and existing infrastructure in the United States and European Union. In the situation where TTIP has not yet been signed some may consider this approach and analysis premature. It is not so. Infrastructure and transport services expansion usually does not happen overnight. It is a long-term process which requires advance conceptual design and planning. In addition, we should think about practical results and impacts trade agreements. The trade and investment growth are, in the final analysis, the major objective of TTIP negotiations. Trade accords, which do not translate into economic effects, are not effective nor worth negotiating.

The following text contains an assessment of possible impacts of TTIP on maritime container trade between the United States and European Union. Major possible bottlenecks of the current system are addressed including port infrastructure, shipping services and land connections. The presented assessment takes under consideration also current trends in container maritime shipping, especially the advantages from introducing larger container ships. The presented maritime container trade case is only an example of a series of evaluations which should be initiated in advance for other sectors of transport, logistics and infrastructure to

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insure full benefits from TTIP. Its objective is also to direct attention of all TTIP stakeholders to the practical aspects of this agreement. The already carried out negotiations are not just a legal and negotiating exercise, but they should serve increasing trade and investment. This should be remembered at each stage of negotiations.

4.2. Introduction The Transatlantic Trade and Investment Partnership (TTIP) is expected to increase trade between US and Europe. The ocean container shipping market normally reacts quickly to fluctuations in the World trade patterns. The TTIP will certainly increase containerized cargo flows on the transatlantic route. This increase will have to be accommodated by ports, terminals, and ships. The introduction of Very Large Container Ships (VLCS) and the planned deployment of Ultra Large Container Ships (ULCS) will change shipping patterns and require port expansions, and updates. Mutual relations among trade, shipping, larger vessels, and ports are addressed to assess if the projected larger trade flows created by TTIP can be efficiently shipped and accommodated at US and European ports.

4.3. US - Europe ocean containerized trade US trade shipped via European ports. The current US containerized trade shipped through European ports amounts to more than 4.7 million 20-foot equivalent units (TEUs) annually (in the 12-month period ending March 2015). It includes about 1.9 million TEUs in US exports and more than 2.8 million TEUs in US imports. Import shipments represent 59.3 percent of this trade. The annual rate of growth for containerized US maritime imports to European port amounts to almost 10 percent while exports tumbled compared to the previous year by 4.6 percent.

A number of ocean carriers serve this route. Mediterranean Shipping Co. (MSC) held a 26.3 percent share of the overall trade. Hapag-Lloyd, after merging with Chilean carrier CSAV in 2014, holds 18.3 percent of the U.S – Europe trade.

Maersk Line, the world’s largest container carrier in terms of capacity, was the third-largest carrier in the US containerized trade via European ports, with an 11.2 percent market share. These three largest ocean carriers together controlled 55.8 percent of this market. They together increased containerized cargo volumes by 7.3 percent in the analyzed period. Other major transatlantic route players were

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the CMA CGM Group, which ranked fourth with a 6.3 percent market share; and Hong Kong’s OOCL, which ranked fifth with 5 percent of the trade.

In terms of annual growth for the period ending March 2015, CMA CGM was the fastest-growing Top 10 carrier in this market, with 18 percent growth in US trade, led by 21.5 percent year-over-year growth in US imports and 12.3 percent in US exports. The niche carrier, Independent Container Line of Antwerp, was second-best among the Top 10 transatlantic carriers in terms of growth. Its US import shipments were up 15.8 percent annually. This resulted in an overall 13.4 percent annual growth for this carrier’s US ocean containerized trade through European terminals.

US Containerized ocean trade with European countries. The overall US container trade with European countries increased 5.1 percent annually to nearly 4.7 million TEUs in the twelve-month period ending March 2015. The US exports to European countries slipped, compared to the previous year, to 1.8 million TEUs. US imports from European Union states, representing 60.7 percent of ocean containerized trade, increased significantly. The rate of growth was 9.6 percent in 12 months which resulted in total shipments of more than 2.8 million TEUs. Four European countries were the major trading partners for the US and had a double-digit market share in the ocean containerized US trade. Germany was the largest US trading partner with 19.2 percent of the total trade and ranked first in US imports. Belgium was second with 12.8 percent of the total trade and was top-ranked in US exports. Italy was third with an 11.1 percent market share (total ocean trade), and the Netherlands was fourth with 10.4 percent of the market.

By country, major European importers of ocean going containerized cargo from the US were: Belgium, Germany, U.K., Netherlands, Turkey, Italy, and Spain. Major exporters to the US were Germany, Italy, Belgium, Netherlands, France, U.K., Spain, Turkey, and Poland. Poland was the fastest-growing trading partner with 12.1 percent growth in the overall US trade via European ports, followed by Germany with 10 percent growth. Spain was the fastest-growing destination for US exports via European ports, with 10.6 percent year-over-year growth. Turkey, the fastest-growing source for US imports via European ports, spiked at 25.8 percent year over year growth. Salisbury (2015).

The data indicate that: a) ocean containerized cargo transshipments in the US – Europe trade are insignificant, b) there is a significant imbalance in ocean cargo containerized shipments in the Transatlantic route US – Europe, with US imports higher by about 0.9 million TEUs annually.

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4.4. US and European ports serving transatlantic routes Major US ports. Major US ports in the transatlantic container trade are the Port of New York and New Jersey, which accounted for 26.5 percent of the trade in the twelve months through March 2015. Three other largest ports (or port groups) also held double-digit market shares: Virginia Ports Authority, 13.8 percent; Houston, 13.4 percent; and South Carolina Ports, 12.2 percent. Other important ports were: Georgia Ports, Oakland, Baltimore, New Orleans, Los Angeles, Delaware River Ports and North Carolina Ports. This indicates that the U.S East Coast ports do not have a monopoly in serving the US transatlantic trade. The US West Coast (USWC) ports - Long Beach, Los Angeles and Oakland account for a significant share of this trade.

Major European ports. On the other side of the Atlantic three European ports held double-digit market shares in US trade via European ports in the assessed period. Antwerp was the largest US trading partner with 16.8 percent of the trade and ranked first in US exports. Bremen-Bremerhaven was second with 16 percent of the total trade and ranked first in US imports. Rotterdam was third with 14.3 percent of the market. Other important European ports serving US – Europe trade were: Algeciras, Southampton, Hamburg, Liverpool, Cagliari, Le Havre, La Spezia, Valencia, and Genoa. Two European ports achieved double-digit growth in this trade: Southampton, England, skyrocketed with 80 percent growth, and volume at La Spezia, Italy, jumped 11.7 percent.

In conclusion, containerized U.S – Europe trade is served by a number of ports in the US (on both Atlantic and Pacific coasts) and a large number of European ports. In fact, the number of European ports serving this traffic is larger than indicated in the list provided in the preceding paragraphs. It is because the PIERS statistics (major world source of information on ocean shipping) provide information only about the first discharge port and the last load port. For example, the Port of Gdansk Deepwater Container Terminal (DCT) is also serving meaningful volumes of U.S – Europe cargo but that is not fully captured by the PIERS cargo statistics.

4.5. Transatlantic corridor in the World containerized trade The transatlantic corridor was in the past the dominant US trade corridor. It has stagnated in the recent 25 years and its role in the World ocean container trade has slipped. In the recent several years, containerized cargo shipments between North America and Europe have developed slower than shipments in the Asian corridors. This was caused by recession in US and Europe economies, and the con-

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tinued growth of Asia’s role in global economy (recently due to its fast growing industrial and manufacturing prowess). North Europe – North America’s total container shipments amounted, in 2013, to more than 4.7 million TEUs while Asia – North-America shipments were 23.1 million TEU’s; and Asia - North Europe 13.7 million TEUs (Table 4.1). The fast-growing economic globalization has created significant additional demand for international transport and altered historical shipping trends. The strength of these changes is not fully understood. It seems that some relatively small changes in trade policies and principles, may significantly impact some of the current containerized cargo flows.

The transatlantic container trade shipment corridor is classified as mature and stable. This means that cargo flows are predictable with little possibility for unexpected and volatile changes. Consequently, shippers, ocean carriers, and ports can safely plan their activities, develop service patterns and prepare investment strategies. The situation is different for the fast growing Asian, other east-west and Pacific markets which are subjects to frequent volatile market ups and downs. The recent downturn in the container market related to slower growth rates in China illustrates this situation well.

4.6. Changes in World container markets The world container markets are currently preparing for a significant structural change which will occur when a larger number of Very Large Container Ships (VLCS) and Ultra Large Container Ships (ULCS) are deployed. Ocean carriers, ports and terminals are already making preparations and investments in anticipation of this development. The introduction of these ships will significantly change shipping and operation patterns for basically all major world routes. This will affect routes where these mega ships are deployed, but also other routes. This will, in effect, create a chain reaction of change. Many vessels, which currently serve major routes, will be replaced by VLCSs and ULCSs. They will next be deployed to other routes. Consequently, the average size of container vessels in international container trade will significantly increase. Ports, terminals, stevedores, and many other entities must adjust to this development. In a stable and predictable North American – North European markets these preparations should be easier and can be completed in an orderly fashion. Currently, transatlantic shipments are dominated by smaller container ships. However, this situation may change if the cargo flows increase. So, we may expect two major reactions on transatlantic routes related to changes in the overall containerized trade. The first will include a tendency of deploying larger vessels to The Transatlantic connections by shipping lines. The

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second will create a growing demand for container shipments as a result of the TTIP-caused increase in trade flows. We will evaluate further if this may mean that VLCS and ULCS will be more frequently employed on transatlantic routes and if port facilities and terminals are capable of accommodating these cargo volumes and larger vessels in a timely manner.

Shipping services. There are almost 500 liner shipping services providing regularly scheduled service (usually weekly) that enables for goods moving between ports along the many trade routes of the world. 44 ocean container services serve US â&#x20AC;&#x201C; Europe trade (North Europe and Mediterranean) (Table 4.2).

Container Vessel Market Growth. As of April 2015, there were 5,059 cellular ships in operation of the total capacity 19.194 MTEUs. The container vessel market is growing. In the period April 2014 - April 2015, this market grew by 7.2 percent.

About 1.5 percent of container ships were idle. Vessels of total capacity about 3.590 MTEUs were ordered. Data indicate that the container vessel market develops slower than in the previous years but the trend to order and introduce larger vessels continues.

Table 4.1: Route Asia-North America Asia-North Europe Asia-Mediterranean Asia-Middle East North Europe-North America Australia-Far East * Asia-East Coast South America North Europe/Mediterranean-East Coast South America North America-East Coast South America

Top Trade Routes (TEU shipped) 2013 West Bound

East Bound

7,739,000 9,187,000 4,678,000 3,700,000 2,636,000

15,386,000 4,519,000 2,061,000 1,314,000 2,074,000

North Bound

South Bound

1,072,016 621,000 795,000

1,851,263 1,510,000 885,000

23,125,000 13,706,000 6,739,000 5,014,000 4,710,000 2,923,279 2,131,000 1,680,000

656,000

650,000

1,306,000

* : 2012 data Source: Trade Routes, World Shipping Council, 2013, worldshipping.org, visited June 2015

Table 4.2:

Liner Container Services by Trade Routes 2013 Route

Far East- North America North Europe- Far East Far East- Mediterranean North Europe- North America Mediterranean- North America

Total

Services 73 28 31 23 21

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Europe- Mid- East/ South Asia North America-Mid-East/South Asia Far East- Mid- East/South Asia Australasia East Coast South America West Coast South America South Africa West Africa Total

Services 40 10 72 34 26 48 24 60 490

Notes: Services may be counted on more than one route.

Source: Drewry Container Forecaster Q1 & Q2 2013

4.7. Container vessels Vessel type. Table 4.3 provides a listing of major categories of container vessels. There is no one commonly accepted definition of particular container vessel types. The table provides vessel categories based on evaluation of several sources.

One of the most important criteria for dividing container vessels into particular categories is that they can be accommodated by the Panama Canal and Suez Canal.

In literature two terms are often used for the largest container vessels in the World: Very Large Container Ships (VLCS) and Ultra Large Container Ships (ULCS). Unfortunately, there is no one commonly accepted definition of VLCSs and ULCSs. For the purposes of this paper we have made the following two assumptions: a) all vessels between 10,000 and 20,000 TEUs are Very Large Container Ships (VLCS), and b) all vessels larger than that are Ultra Large Container Ships. Based on this assumption, we may say that all currently used “large” container vessels are VLCS but a number of ULCS (as defined) have been ordered (Figure 4.1). Vessels smaller than 10,000 TEUs are and will still operate on routes with cargo flows too small to deploy the VLCS/ULCS. Vessel size. Shipping lines are fast introducing larger vessels. In 2000, there were 2,606 container ships, and an average vessel size was 2,606 TEUs. In 2015, there were 5,035 vessels in operation, and their average size is about 3,649TEUs. The major trend in the market is the fast growing large mega vessels. A large number of such VLCSs and ULCSs either has been or will be deployed to major shipping routes until 2019.

Vessel size growth limitations. It is believed that container vessels size will not go beyond the current maximum of 400 by 60 meters, so the largest vessels may be able to carry about 20,000 to 23,000 TEUs. It is projected that cost savings

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resulted from increasing ships’ cargo capacity will not justify further vessel size increase at the current and projected cargo flows. Major savings after 2020 will come from other actions such: further consolidation optimization of shipping networks and alliances, joint logistics and intermodal operations, optimization of ship utilization, performance optimization such as bunker purchase optimization, improvements in vessel procurement, maintenance, etc. leading to capital cost savings.

Table 4.3:

Current and future deployment of VLCSs and ULCSs (2015-2019)

Source: (Tidemann 2015)

4.8. VLCSs and ULCSs vs. cargo shipment patterns The introduction of VLCSs and ULCSs has impacted both ports that can and can’t handle them. An analysis and observations of container markets indicate that some shippers may relocate their business to ports that can be served by these

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mega-ships. For example, Rotterdam, which is served by the largest VCLSs may service cargo which now is using Hamburg – the port which has limitations in handling larger ships. Next, Hamburg-bound containers are shipped on a feeder ship or are transferred by road or rail directly to the destination, depending on the distance. This may challenge many ports’ top-tier status, their inclusion on a main haul itinerary, and their place in a hub and feeder network. So, the VCLS will significant contribute to the changes in containerized cargo shipments patterns.

Current trends in vessel placement. The introduction of larger vessels has significant impact on all major routes. VLCS ships are deployed primarily to the Asia- Europe and Asia-USWC routes. But secondary and tertiary trade routes have also started to accept larger vessels. These are smaller ships (including smaller VCLSs) which were replaced by larger VCLSs on the primary trade lanes, and shifted to secondary markets. This creates a large number of consequences and implications for ports, terminal and related land transportation systems. They need to get prepared for handling larger ships.

Table 4.4:

Container vessels – type and technical specifications

Name Ultra Large Container Ships (ULCS) Very Large Container Ships (VLCS) Next Generation VLCS Neo-overpanamax Neo-Panamax Standard Container Vessels Second generation over-panamax Post Panamax Plus Post Panamax Panamax Max Panamax Feeders Feeder/Fully Cellular Early container ship/Small feeder

Year

Capacity(TEU)

Length (m)

Beam (m)

Draft (m)

DWT

20,000 and more 2013 2010 2010

18,500–20, 000 14,000–16,000 13,000-14,000

400 366 366

59 50-51 49

15-16 15.0-15.5 15.5

190,000 155,000 140,000

2005 2000 1988 1985 1980

8,500–10,000 6,000-10,000 4,000-5,000 3,500-4,500 3,000–3,500

335 300 285 290 250

43 43 40 32 32

14.5 14.5 13 12.5 12.5

100,000

1970 1956

1,000-3,000 500-1,000

215 137

20 17

10 9

Sources: Prepared by the author using data provided by (Tidemann 2015) and (Rodrigue 2013)

4.9. TTIP and projected trade growth The signing of the Transatlantic Trade and Investment Partnership (TTIP) will increase trade on transatlantic routes. The United States and European Union together represent 60% of global GDP, 33% of world trade in goods and 42% of world

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trade in services. An economic impact study indicated that liberalizing trade would imply significant increases in EU-US trade. Several scenarios were considered.

In the less optimistic scenario, as a consequence of the TTIP EU exports to the US will increase by 16 per cent while US exports to the EU increase by 23 per cent. At the more ambitious approach, the increase will be 28 and 37 percent, respectively.

About two thirds of the projected increase in bilateral trade in the ambitious scenario is attributable to reducing non-tariff barriers (NTB) in goods sectors (as stated earlier in this book, tariffs in the US-EU trade are already very low). Based on the above, and considering the current transport patterns we can safely assume that U.S- EU ocean container trade has a potential of increasing up 20 percent in less optimistic and more than 25 under a more optimistic scenario. Consequently, we may assume that the overall US-Europe containerized ocean trade may grow as a result of TTIP implementation by 1 to 1.2 million TEUs annually. Additional cargo (although smaller) cargo gains may come from US West Coast ports via the Suez Canal. This is a substantial amount of cargo that requires serious consideration with respect to vessel deployment, port capacities, and other elements of logistics system.

4.10.â&#x20AC;&#x192; Possible vessel deployment to transatlantic routes The increased cargo volumes and the earlier described trends in increasing vessels size may create incentives for shipping lines to more frequent directing VLCS and vessel schedules to the transatlantic route. The introduction of large container ships with capacities of more than 10,000â&#x20AC;&#x2030;TUEs promises higher rates of profitability for operators because of reduced fuel consumed per TEU. Also other operating costs can be reduced by using VLCSs. This opportunity is particularly important in the current market situation when freight rates are low and competition is fierce. Currently, US-Europe trade is currently not carried by large vessels.

The average vessel calling on the US East Coast has a capacity of more than 5,000 TEUs, compared to an average cargo hold of 3,980 TEUs in 2009. Similarly, the size of the average ship calling the US West Coast has grown from 4,682 TEUs to close to 6,000 TEUs. But this will change.

For many in the trade, anticipation in recent years has centered around preparations for the onslaught of large mega-ships that will begin to pour through the Panama Canal when its decade-long expansion project is complete and ready for action in the 2nd quarter of 2016 see: Table 4.4). These big ships will be arriving through the Suez Canal from Asia. The driving the trend is the introduction of new 10,000+ TEU vessels on the Asia-Europe trade, and consequently cascading

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the 8,000 TEU ships that previously plied the trans-Pacific trade. Shipping companies will seek the economies of scale by changing routes and deploying the 5,000 TEU ships - the largest that can transit the Panama Canal form the Asian market to this route. The larger VLCSs still will not be able to cross the Panama Canal – another lock expansion is needed. VLCS vessels will be pushed to Asian markets.

The 5,000 to 8,000 TEU ships will be more frequently calling the EU ports. There are some chances for deploying VLCS to the Europe – North America routes provided that trade flows will grow and cargo concentration will continue. Will the US and European ports be able to handle the increased numbers of larger vessels?

4.11. Expansion of ports to accommodate large vessels General observations. Maritime experts confirm that significant port and terminal improvements are needed to accommodate the growing VCLSs and future deployment of UCLSs. For the transatlantic route improvements are needed on the both sides of the pond. The employment of larger ships may challenge ports in several ways. Terminal capacity must be adjusted (increased). VLCS (and ULCSs) need to unload, in a short period of time, much larger container volumes than smaller vessels. Terminal capacities must therefore be expanded. An additional demand for intermediate container storage space, marshalling yard space, plug-ins for cooling and refrigerated containers, and warehouse space must be provided.

Moreover, ports will have to cope with a much higher variability in delivery volumes and larger impact of possible vessel delays on terminal operations. With VLCS’ the forwarding and distribution of cargo becomes a logistical challenge, possibly requiring additional rail and road capacity in ports including expansion of rail and truck yards, or capacities of a port’s internal railroads such as, e.g., the New Orleans Public Belt Railroad. Also, significant additional investment in more freight handling equipment at terminals will be necessary. More efficiency can be provided by extensive usage of IT solutions by terminals, stevedores, freight forwarders, and logistic and transport companies. Uniform IT platforms for all participants in the port logistics process may be necessary to insure the necessary capacities to serve VLCSs. These issues concern both the US and European ports.

European ports. Many European ports have restrictions for quick deployment of larger VCLSs and UCLSs. For example at Hamburg, restricted draught has been a limiting factor. The draught is 12.8 meters during low tide and 15.1 meters during high tide. As transpires from the earlier sections this may, in the long run, constitute a severe limitation to larger vessels. Another important factor is related to vessel breadth (beam) and channel passings. The combined beam of two ships

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plus separation zone between vessels is required for safe passing in a channel.

Without some restructurings of the channel this may be a significant problem.

For example, the 19,000 TEU CSCL Globe has a beam of 59 meters and draught of 16 meters fully laden. It is apparent that ships of this size are too wide for the Hamburg Elbe Channel, which has a width of just 90 meters. It would not be possible for another ship to pass when arriving or departing. The left safety zone of just 15 meters is insufficient. To accommodate the majority of VLCSs, one-way traffic would have to be imposed, while such large ships pass up or down the channel.

This would create long waiting times and congestion for other port users. Consequently, significant additional costs to the port and other users may occur which may prevent VLCSs calls. Similar problems may exist in other European (as well as for US port facilities). A survey of 17 European ports, comprising 55 container terminals, found that at the end of 2014, however, combined container handling capacity stood at 86 million TEUs with an occupancy rate of 62%. To prevent capacity constraints, ports and terminal operators have to try to stay ahead of demand.

If all intended expansions and new terminals are commissioned as planned, the 2014 overall capacity of 86 million TEU may increase by 5.2% to 143 million TEU by 2024 (Illing 2015).

Many ports in Europe have already expanded to accommodate larger vessels.

Few ports were built with VCLSs (and ULCSs) in mind. The first 18,000 TEU ships were delivered just recently, but the number of ships this size will reach over 100 by the end of this decade. This is putting pressure on terminal operators to invest substantially in the cranes and equipment needed to handle the VLCSs (and ULCSs). The consensus among big container carriers nowadays is that terminals should be able to handle 6,000 moves a day on vessels above 14,000 TEUs. This calls for improvements at almost all European ports. Larger cranes with longer outreach weigh more, and therefore need stronger quaysides to support their weight.

In 2014, only three of the 31 northern European ports were purpose-built for handling larger VLCSa and ULCSs: a) Eurogate Container Terminal in Wilhelmshaven, b) Hutchison’s Berths 8/9 at Felixstowe, and c) ECT’s Euromax at Maasvlakte I and II in Rotterdam. These three terminals alone will increase the northern European container capacity by 6 million TEU or 7 percent.

DP World’s London Gateway terminal has also been developed for VCLSs and ULCSs, but is not yet handling any ULCS. The Southampton Container Terminal has been expanded with a custom-built ULCS berth. The Liverpool 2 Container terminal is also due to open by year-end 2016. Also in Hamburg a part of the quays of Eurogate’s Container Terminal Hamburg and HHLA Container Terminal Burchardkai in addition to the APM Terminal Gothenburg have been expanded.

Many similar improvements are taking place in Europe. The Port of Gdansk De-

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epwater Container Terminal has become one of the largest transshipment centers in the Baltic, using its 15 m depth as a competitive advantage for Maersk VLCSs. It was so successful that a second terminal is currently being built. These examples indicate that many terminals aim to achieve economies of scale by operating increasingly larger ships. This means that mainline terminals have no choice but to invest substantial sums in their facilities. This may increase stevedoring and terminal charges, but it is unlikely that they will slow down the trends towards large vessels (Baker 2015).

US Ports. VCLSs (and obviously ULCSs) are too large for most US East Coast (USEC) ports if fully laden. Air draught, the height of the ship and its antennae above the water are also limiting factors. Along the US East Coast, many bridges that are high enough to allow current size vessels to pass, but have insufficient clearance for the newest mega-ships. These factors will mean that shipping companies, trying to use the largest vessels possible to serve their markets and ports; will need to be actively engaged in promoting dredging and upgrading the logistical capabilities at their load centers in order to meet the mega-ship challenge.

The Virginia Port Authority is planning to increase the Hampton Roads approach to 55 feet. In fact, both the submerged tunnels of the Chesapeake Bay Bridge and the Hampton Roads Bridge can allow a channel depth down to around 60 feet.

This will make both the Emma Maersk and the Triple-E type container carriers able to utilize the APM Terminal as a load center for the Trans-Atlantic container trade. It is important to insure that needed high capacity land connections are necessary to distribute the containers carried by VLCSs. For example, the owners of CSX and Norfolk Southern are eminently aware of the fact that APM has a brand new container terminal in Hampton Roads. They also know that the APM Terminal has a 50-feet deep access channel depth and 55 feet of alongside. What is also evidently clear is that the amount of container handling capacity APM is building up in Hampton Roads is not only aimed at the State of Virginia and its neighbors.

The strategic move here is to landbridge large amounts of its Hampton Roads container cargo to other north eastern and mid-west states. They may even have designs on the USWC. The landbridge railroad connection to these other markets are, economically, clearly in reach of the Hampton Road container facilities, particularly given the economies of scale both on the new Triple-E carriers and Emma Maersk. With double stacked trains, the APM will be able to easily reach most of the US hinterland and may even take away container traffic from the Port Authority of New York/New Jersey which has both air draft constraints (Bayonne Bridge) and draft restrictions along the Kill van Kull. As can be seen, the access to Chicago and the rest of the Mid-West is relatively easy, particularly when one combines that with the economies of scale of the new ships and the double stacked trains. CSX

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shareholders are well aware of the fact that the Panama Canal Authority made a major mistake in the decision of size of the 3rd set of locks. They see APMâ&#x20AC;&#x2122;s bold movement towards Very Large Container Ships will prove a boon for both APM and the Hampton Roads Ports. Thus, the container cargo moving through the VPA and APM facilities will increase over time and make Hampton Roads one of the major container ports on the US East Coast. Consequently, they have encouraged both CSX and Norfolk Southern to prepare for the coming comparative advantage that the Hampton Roads Ports have (Figure 4.2).

Figure 4.1: Current & planned water access depth for some US East Coast ports 60

Draft - feet

50

45

50

50

55

45

50

45

50

48

42

40 30 20 10 0 New York/New Jersey

Hampton Roads

Charlston, S.C. Current

Baltimore

Savannah, GA

Pl a nned

Source: (Berg- Andreassen 2014)

Figure 4.2: Current & water access depth for some West Coast ports 70 60

Long Beach (Pier T), CA

Oakland (Outer Harbor), CA

10

Tacoma, WA

20

Seattle, WA

30

Delta Port Vancouver, BC

40

Prince Rupert, BC

MaxDept (ft)

50

0

Source: (Berg- Andreassen 2014)

US West Coast ports pose another problem for transatlantic trade. They can handle ships of about 10,000 TEUs, but the average is about 8,000â&#x20AC;&#x2030;TEUs. These ves-

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sels are still too wide and long for the Panama Canal. From the Far East to the US East Coast, container ship traffic is restricted to vessels that can pass through Panama, which is currently only 5,500 TEUs. Even with the enlarged canal, the beam restrictions will only be able to handle box ship at 12,000 TEUs. In sum, the situation for the VLCS is even worse on the US West Coast (Table 4.4). At least the USEC has the possibility to be in the VLCS string with at least Hampton Roads as they can easily traverse the Chesapeake Bay Tunnel and sail under the Hampton Roads Bridge to reach the APM terminal despite that these strings rely on the Suez Canal. Most of the West Coast container ports have basically reached their maximum and no real efforts are in progress to adjust their port capabilities to receive these new behemoths. In Figure 4.3 it is clear that only Prince Rupert, BC and Long Beach, CA can, theoretically accommodate the VLCS. So far, however, only Long Beach, CA will have the capacity to handle the landbridge traffic to the Mid-West and the East Coast of the US. Despite the fact that Prince Rupert, BC have the draft it currently lacks both marshalling yards and the land bridge capacity to handle the two way traffic. Only CN serves Prince Rupert. Ships entering the Vancouver, BC Metro ports, i.e., Delta Port and the planned Robert Banks Terminal 2 are, however, forced to navigate through the Strait of Juan de Fuca and the Strait of Georgia. In essence, none of the USWC ports are built to handle the VLCS – nor the even larger ULCS (20,000 TEUs) expected to come on stream during the next 10 years (Figure 4.2 and 4.3).

4.12. Conclusions A comparison of the current and projected capacities of US and European ports indicate that they will significantly increase. European ports will in ten years be capable to handle 143 million TEUs annually compared with the current 86 million TEUs. The U.S port capacity is also projected to increase by more than 60 to 70 million TEUs per year. A comparison of these numbers with the projected growth of the U.S - EU trade resulting from TTIP agreement indicates that there should not be any problems accommodating the additional 15 to 20 million TEUs. The transatlantic container trade is, currently, a relatively small market compared to the Asian routes. It may be expected that larger vessels will be introduced to this route, however VLCSs above 15,000 TEUs will be primarily deployed to Asian rotations, and UCLSs will be exclusively engaged in Asian routes. In sum, current port and maritime infrastructure development plans and maritime transport services potential are sufficient to accommodate increased containerized trade flows resulting from trade liberalization and larger market access created by TTIP.

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Table 4.5:

The third set of Panama Canal locks and international liner shipping industry’s VLCS – APM & CMA CGM

Ship Type

LOA Meter

Triple-E E-Class Carrier Marco Polo Panama Canal 3rd Set of Locks Restrictions

Beam Feet

Meter

Airdraft Feet

Meter

Draft

Feet

Meter

Feet

400 397 396

1312’4” 1302’6” 1299’2”

59 56 54

193’7” 183’8” 177’2”

73 58 58

239’6” 190’ 190’

15.5 15.5 16.0

50’10 50’10” 52’5”

366

1200’

49

160’

∞

∞

15

50’

Source: (Berg-Andreassen 2014)

4.13. References [1].

[2].

[3].

[4].

[5].

[6].

[7].

[8].

[9].

[10].

[11].

[12].

[13].

[14].

[15].

[16].

[17].

Baker, J., 2015, North Europe box ports congested and underused, Lloydsloadinglist.com, September 2015 Berg-Andreassen, J., Prokopowicz, A., 2014, The Container Shipping Industry & the Very Large Container Carriers (VLCS’s), Infratrans, Corpus Christi.

College of Business and Public Administration, Old Dominion University 2010, Hampton Roads versus Other East Coast Container Ports, Norfolk, VA 2010 Drewry Container Forecaster Q1 & Q2 2013 Federal Railroad Administration, Final Report Comparative Evaluation of Rail and Truck Fuel Efficiency on Competitive Corridors, Washington, DC, November 19, 2009 Francois, J., 2013. Reducing Transatlantic Barriers to Trade and Investment, An Economic Assessment, Final Project Report, Centre for Economic Research Policy Research, London.

Illing, D., 2015. Addressing the ultra-large container ship challenge, JOC.com, April 17, 2015 Kremer, W., 2013. How much bigger can container ships get?, bbc.com, February 19, 2013 Kehoe, O., 2003. Economics of Truck and Rail Freight Transportation, A look at public and external costs and the truck-rail modal split, University of Michigan, Department of Civil & Environmental Engineering, Final Paper 12-8-2003 Raw, J., Virginia Department of Transportation, Transportation & Mobility Planning, Hampton Roads Travel Demand Model, 2008.

Rodrigue, J., 2013, The Geography Systems (quoted by W. Kremer, How much bigger can container ships get?, BBC Magazine, February 2013).

SAIC /Virginia Coastal Energy Research Consortium, Hampton Roads Maritime and Ports Capacity Report, Norfolk, VA July 2009.

Trade Routes, World Shipping Council, 2013. worldshipping.org, website visited June 2015 The Journal of Commerce, PIERS, reported on August 4, 2015.

Tidemann, J., 2015, The container ship market in 2015, Ultra-large box vessels: scaling effects in the container trade, EHMC Seminar, May 2015.

Salisbury, M., 2015, CMA CGM, Baltimore, Southampton, Poland, make mark in Atlantic, JOC.com, August 4, 2015.

CHAPTER 5

Negotiating TTIP – Transport services case

5.1. Introduction This chapter provides information on the negotiating TTIP provisions on transport services. The purpose of this assessment is to provide an example of the practical issues which negotiators encounter during talks. This will offer additional and practical insights into the negotiating process and illustrate its complex character. The assessment shows how various interests, differences in levels of regulation, and objectives of the negotiating partners impact the negotiating process and its outcomes.

Data for this evaluation was collected from the U.S and EU published sources.

Since the U.S partners are less inclined to make their opinions, position and textual papers public; this analysis provides more information on the EU position. This overview highlights roles which various entities play in the development of the final text of the TTIP agreement. The majority of this analysis concentrates on recent events. The analysis covers the period which ends in December 2015.

5.2. Economic impact of transport services and TTIP The following presents data used for justifying inclusion of transport services in TTIP negotiations in 2013 and 2014. Major elements have not changed since. The US transportation service sector includes all air and water transportation services, whether for passengers or freight (rail and truck transportation are included in other services). At $84 billion, the transportation service sector accounted for about 0.56 percent of total US GDP in 2011. It remained on this level in the subsequent years.

The economic impact of transport services was based on a report by the Centre for Economic Policy Research (CEPR) titled Reducing Transatlantic Barriers to Trade and Investment: An Economic Assessment, The Trade Partnership’s CDex-

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ports database, and the approach used by Ecorys to quantify non-tariff measures (Francois 2013).

For the purposes of evaluation, the CEPR study defines an ambitious agreement as such which involves: a) a 100 percent reduction in tariffs, b) a 25 percent reduction in the costs resulting from non-tariff measures such as regulatory barriers affecting goods and services, and c) a 50 percent reduction in procurement non-tariff barriers. The CEPR study estimates reflect the full implementation of an ambitious TTIP agreement by the year 2027. The results are based on an estimated change derived from the TTIP compared to a 2027 baseline year without the TTIP in place.

According to the CEPR study, a fully completed agreement would increase the US GDP by up to â&#x201A;Ź95 billion, or $125 billion at current exchange rates, under its most ambitious scenario. It was estimated that the implementation of an ambitious Transatlantic Trade and Investment Partnership, the US transportation service exports will grow by approximately 2 percent from 2012 levels. In 2011, the United States exported $23.6 billion worth of transportation services to the EU. Nearly $1 out of every $3 in US transportation services exports went to the EU in 2011.

Implementation of an ambitious TTIP by the year 2027 is expected to increase US transportation service exports to the EU by $535 million. The vast majority of these gains would result from non-tariff measures (NTM) reductions. The US transportation service exporters face a variety of NTMs that restrict access to the EU market. It is estimated that these NTMs are equivalent to an 8 percent tariff on US exports of maritime transportation services and 2 percent tariff on air transport services.

Figure 5.1: US exports of transportation services to EU ($ billion) 30 25

$25.2 $20.0

20

$21.8

$23.6

15 10 5 0 2008

2009

2010

2011

Source: US Census

It is important to note that the largest positive effects of the TTIP arise from the agreementâ&#x20AC;&#x2122;s indirect impacts on US spending and investment. For example, due to the lower costs of imports, companies and consumers have additional re-

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sources available to spend on other goods and services, and that spending is itself job supporting. According to the European Commission estimates, TTIP increases disposable income by approximately $865 annually for an average American family of four.

Figure 5.2: US exports of transportation services to EU ($ billion)

EU, 30%

Rest of World, 70%

Source: US Census

5.3. Transport services in TTIP negotiations Transport services have recently been addressed in two major documents which created a basis for the tenth and subsequent rounds of negotiations. These documents are: a) Negotiations for the Transatlantic Trade and Investment Partnership (TTIP), European Parliament resolution of 8 July 2015 containing the European Parliament’s recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP) (2014/2228(INI)) - P8_TA-PROV(2015)0252 and b) Transatlantic Trade and Investment Partnership; Trade In Services, Investment and E-Commerce – a textual proposal from the European Union. This document is the European Union’s proposal for services, investment and e-commerce text. It was tabled for discussion with the US during the tenth negotiating round in Brussels, July 12 -17, 2015, and made public on 31 July 2015.

5.4. EU Parliament position on transport services 5.4.1. International trade in services and transport services Services and investment are cornerstones in the EU economy. The EU’s international trade in services has increased significantly in the last decade and the EU28

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surplus reached €173 billion in 2013. The EU is the world’s largest exporter of services supporting several million jobs throughout Europe. In 2013, the main partner for EU28 exports of services was the United States (€161 billion, 23% of extra-EU28 services exports). The United States are also the main EU partner for EU28 imports of services (€148 billion, 29% of extra-EU28 imports). Yet, there still remain great opportunities to expand trade in the service sectors (Reading guide 2015).

Considering the role of services for both the EU and US economies, the TTIP negotiations aim to make it easier for companies providing services to do so in both the EU and the US while protecting public services and sectors that play a particular role for citizens. In its proposal, the EU offers meaningful commitments in sectors that are key to foster Europe’s competitiveness and growth: a) Sectors that are key “enablers” of the economy and boost the digital economy, such as computer and telecommunication services; b ) Sectors that accelerate the integration in global value chains, such as international maritime transport, air transport, courier services, professional and business services; c) Other key economic sectors, such as construction services, distribution, energy or environmental services.

The EU proposal does not include financial services. The EU may make an offer in this area at a later stage depending on the progress of discussions on regulatory cooperation in financial services. In the aftermath of the financial crisis, the TTIP negotiations did indeed provide a springboard for strengthening collaboration in this area, promoting better consistency between the EU and US rules and the fostering of financial stability.

Importantly, the EU treats differently a number of so-called sensitive sectors.

This approach is consistent with its policy orientations in trade agreements over the past 20 years. In particular, audio-visual services are excluded from commitments related to the opening of the markets in accordance with the negotiating mandate given by the Member States to the Commission. Public services are protected in the TTIP. In accordance with the joint statement on public services on March 20, 2015 by Commissioner Malmström and her US counterpart Ambassador Froman, the EU protects public services and in particular sectors which play a special role in member-states such as public health, public education, social services, and the management, collection, purification or distribution of water.

5.4.2. Structure and main elements of the EU proposal on services The EU proposal consists of two main elements: a text and a number of annexes. This package reflects the compromise reached earlier in 2015 between Commissioner Malmström and Ambassador Froman regarding the architecture of the Title on services, investment and e-commerce.

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A draft text lays down the main definitions, principles and obligations that both sides agree to implement as regards the measures they apply to (or will apply) affecting trade in services.

Chapter I of the document includes general provisions which apply to the entire chapter, including definitions. It sheds light on the ambition to create a better climate to develop, and achieve progressive reciprocal liberalization of trade in services, investment and e-commerce between the Parties. Concurrently, it reaffirms explicitly the right of each Party to regulate and pursue legitimate policy objectives (a few examples of such objectives are provided in the first paragraph of Article 1-1 such as protecting public health and consumer protection. This list is not exhaustive).

Chapter II applies to investment. The principles set out are basically common to all EU free trade agreements: commitments not to impose certain kinds of “quantitative” barriers (“market access”; e.g. restrictions on the number of investors), commitment not to discriminate investors of the other Party (“national treatment”), commitment to extend to the other Party any more favorable treatment than would be provided to a third party (“most favored nation treatment”). Importantly, the EU also foresees a number of exceptions in specific sectors or activities (so-called “reservations”). These “reservations” are listed in different annexes. These various provisions do not apply to audio-visual services and subsidies and do not affect the obligations undertaken in the context of the separate Title on government procurement (see Article 2-1). In view of the on-going reflection on investment protection, the EU proposal does not include provisions in this area, but is only a placeholder.

Chapter III sets out the principles and obligations that both Parties undertake as regards the measures affecting the cross-border supply of services. It does not apply to audio-visual services and subsidies and does not affect the obligations undertaken in the context of the separate chapter on government procurement.

The same basic principles common to all EU free trade agreements are included namely market access, national treatment, most-favored nation treatment, and are accompanied by “reservations” (exceptions) in Annexes.

Chapter IV includes principles governing the right of individuals to enter and stay temporarily in the territory of the other Party with a view to supplying a service (“Temporary presence of services suppliers” or “mode 4” in services jargon).

Importantly, this chapter leaves each Party free to regulate the entry of natural persons on their territory (e.g. visas, work permits, etc.) as long as the measures are not applied in such a manner as to impair the market opening flowing from the Title on Services and the so-called “labor and strike clause”). As regards the “labor and strike clause TTIP, like other EU agreements on trade in services, will not affect the laws which underpin people’s rights at work, such as their right to

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join a trade union or earn the minimum wage. Commitments on workers’ mobility cannot be invoked to undermine people’s right to strike.

Chapter V covers principles applying to the regulatory framework affecting services and investment: licensing and qualification requirements, transparency, mutual recognition of qualifications, as well as disciplines governing specific sectors (computer services, postal and courier services, telecommunications, financial services, international maritime transport, air transport, electronic commerce). It is important to note that nothing in this Chapter prevents the Parties from regulating services in a non-discriminatory way, e.g. imposing quality standards in the area of health or education or applying universal services obligations.

Chapter VI lays down key principles with a view to promoting e-commerce while maintaining the Parties’ ability to pursue legitimate policy objectives such as consumer protection.

The Title on services, investment and e-commerce aims to set conducive conditions for trade in services. That being said, certain circumstances may make it necessary for the Parties to take appropriate measures (for instance in order to protect consumers, human health, personal data, the environment, etc). Chapter VII (‘exceptions’) explicitly caters for this.

Annexes concerning the EU. In a nutshell, these annexes define what the EU opens or not open in the various services sectors, now and in the future. In more technical terms these annexes include, sector by sector, the commitments and exceptions to these commitments (“reservations”) that the EU intends to undertake as part of the agreement (bearing in mind that no commitments are taken for the audio-visual sector, as stated earlier). The commitments and reservations in the offer are scheduled using a positive list for market access (as shown in Annex III). In other words, the EU lists only the sectors in which it commits to not apply “quantitative limitations” as a matter of principle. However, even for those sectors, some “quantitative limitations” may be maintained or introduced; these “reservations” (exceptions) are exhaustively listed in Annex III. For obligations other than market access, commitments and reservations in the offer are scheduled using a negative list (Annexes I and II). These obligations include national treatment (i.e. non-discrimination principle), performance requirements, principles applying to senior management and board of directors, and most favored nation treatment.

Annex I lists the measures that already exist and are subject to the so-called “ratchet” clause (ratchet is a mechanism which captures future liberalization in a given sector. Example: if a country has a reservation related to an equity cap in Annex I, any further lifting of the cap done after the agreement enters into force is would be bound by the ratchet). The EU has listed all relevant measures for transparency purposes. Annex II lists the measures that already exist or may be

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introduced in the future (the ratchet mechanism does not apply to Annex II - it will always be possible to reverse future liberalization). Importantly, this annex contains reservations for public services, including health (reservation 20), education (reservation 17), social services (reservation 20), and water (reservation 18). This reflects the EU policy on public services followed during the last 20 years.. The EU also keeps full leeway in regards to “new services” that may emerge, for instance, as a result of technological development (reservation 26) (Reading guide 2015).

5.5. Major developments There is a number of important developments that impact TTIP negotiations in services. These are presented in Table 5.1.

Table 5.1: Year 1920 2005 August 2014 May 1, 2015 May 16, 2015 July 8, 2015 July 13-17 2015 October 28, 2015

Selected activities related to transport services in TTIP Activity

Jones Act The Bush Administration submitted a project of legislation on foreign entities control over US airlines - (later rejected) European Transport Workers Federation Maritime Transport Section against including maritime transport in TTIP Congressmen letter on keeping air transport out of TTIP AFL-CIO letter to Congress to keep air transport off TTIP European Parliament – Recommendations to EC on TTIP negotiations TTTI Trade in Services Investment and E-commerce EU textual proposal AFL-CIO Transportation Trades Department a Policy Statement F15-01 opposing maritime and air transport in TTIP

5.6. Transport Services – EU Parliament Recommendations In document titled Negotiations for the Transatlantic Trade and Investment Partnership (TTIP), European Parliament resolution of 8 July 2015 containing the European Parliament’s recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP) (2014/2228(INI)) - P8_TA-PROV(2015)0252 a number of important policy statements were provided.

In the area of transport services, the EU Parliament made two major groups of recommendations. One, transport issues are addressed by the European Union in a section on market access. In these recommendations, the European Parliament calls for including air and maritime transport issues to the TTIP negotiations.

Two, transport services are also addressed in the public procurement section.

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5.6.1. Maritime and aviation transport services In the market access recommendations (item vi), the European Parliament indicates that the negotiations should meaningfully address and remove the current US restrictions on maritime and air transport services owned by European businesses as a result of US legislation such as the Jones Act, Foreign Dredging Act, the Federal Aviation Act and the US Air Cabotage law. In relation to capital restrictions on foreign ownership of airlines, which seriously hinders market access for EU companies as well as innovation in the US itself the TTIP should address and possibly remove all restrictions.

5.6.2. Access to public services The European Parliament stated that, there is a huge interest on the part of European companies, notably the SMEs, in obtaining non-discriminatory access to public contracts in the US, both at federal and sub-federal level. This concerns mainly construction services, civil engineering, transport and energy infrastructure and goods and services. The EU sources indicate that there is a large disparity in the degree of openness of the two public procurement markets on both sides of the Atlantic. Further negotiations require significant opening up the US market which is still governed by the Buy American Act of 1933 at federal and sub-federal levels.

This objective may be accomplished by an ambitious approach to addressing the TTIP chapter on public procurement. This approach should respect the new EU public procurement and concession directives, and reciprocity principles. The negotiations according to the EU interests should lead to (based on the commitments made in the Agreement on Government Procurement (GPA)) to: a) removing the restrictions that currently apply at the US federal, state and local levels, b) set up mechanisms to guarantee that commitments entered into by the US federal authorities will be honored at all political and administrative levels.

5.7. Transport issues in EC textual proposals 5.7.1. General comments As stated earlier, based on the European Parliament recommendations, EC developed a textual proposal Transatlantic Trade and Investment Partnership; Trade In Services, Investment and E-Commerce1. The EU proposal identifies its position as a 1

Transatlantic Trade and Investment Partnership; Trade In Services, Investment, and E-Commerce (copied material). It is labeled: This document is the European Union’s proposal for services, investment and e-commerce text. It was tabled for discussion with the US in the negotiating round of 12 -17 July 2015 and made public on 31 July 2015.

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starting point for further discussions. As indicated in the preamble of this document, the EU reserves the right to make subsequent modifications to this text and to complement its proposals at a later stage, by modifying, supplementing or withdrawing all, or any part, at any time. The actual text in the final agreement will be the result of negotiations between the EU and US. This is a valuable document to analyze and understand the expectations and objectives of the European Union and test the US interest in including these areas to the final TTIP text. During the tenth round of negotiations, both sides exchanged revised offers, and completed discussions aimed at a better understanding of the respective proposals and interests. The EU proposal was a subject to an initial review.

The EU proposal addresses a number of issues. It contains explanation of objectives, coverage and definitions. An investment chapter provides textual proposals on investment liberalization, market access, national treatment, most-favored-nation treatment, and management and performance requirements. The proposal includes a placeholder on investment protection pending further progress on the EU’s internal discussions on the matter. The EU proposal also has a chapter on: cross-border supply of services, on entry and temporary stay of natural persons for business purposes, and on electronic commerce. The regulatory section of the EU proposal provides several sections with rules on domestic regulations, mutual recognition of professional qualifications, computer services, postal and courier services, electronic communications networks and services, and financial services.

This chapter also addresses two critically important issues: international maritime transport services and air transport services. The inclusion of these areas had a significant impact on the further negotiations and created significant reaction among stakeholders.

5.7.2. Transport is a difficult subject for negotiations The areas of maritime and air transport services will be very difficult to negotiate and achieve a joint position. There are several factors impacting these negotiations. First, there are significant differences in levels of regulation of these areas in the United States and EU. Second, maritime and air transport services are subjects for other trade and market liberalization negotiations. Third, the US and EU objectives in the TTIP transport areas are different. The following will provide some basic information on the scope and direction of the EU proposal and reflect stakeholders’ opinions on these negotiations. The objective of this assessment is to indicate options for further negotiations and evaluate justifications and opportunities for final inclusion of these areas in TTIP. An attempt to assess economic importance of these regulations in the US – EU trade and investment will be carried out.

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5.7.3.â&#x20AC;&#x192; EU proposed regulations on maritime transport services Chapter V, Section VII of the EU proposal Transatlantic Trade and Investment Partnership; Trade In Services, Investment, and E-Commerce submitted for negotiations during 10th TTIP Round of negotiations July 12-17, 2015 (hereinafter: the Proposal) sets out the principles regarding the liberalization of international maritime transport services (pursuant to Chapters II Section 1, III and IV of the Proposal). A number of basic mutual obligations were proposed by the European Union in article 5-39 of the Proposal (item 3 and sub-items). They are described below.

In view of the existing levels of liberalization between the Parties in international maritime transport: a) the Parties shall apply effectively the principle of unrestricted access to the international maritime markets and trades on a commercial and non-discriminatory basis; and b) each Party shall grant to ships flying the flag of the other Party or operated by service suppliers of the other Party treatment no less favorable than that accorded to its own ships, with regard to, inter alia, access to ports, the use of infrastructure and services of ports, and the use of maritime auxiliary services, as well as related fees and charges, customs facilities and the assignment of berths and facilities for loading and unloading.

The EU proposed that in applying these principles, the parties shall: a) not introduce cargo-sharing arrangements in future agreements with third countries concerning maritime transport services, including dry and liquid bulk and liner trade, and terminate, within a reasonable period of time, such cargo-sharing arrangements in case they exist in previous agreements; and b) upon the entry into force of this Agreement, abolish and abstain from introducing any unilateral measures and administrative, technical and other obstacles which could constitute a disguised restriction or have discriminatory effects on the free supply of services in international maritime transport.

Furthermore, the EU proposed that Each Party shall permit international maritime service suppliers of the other Party to have an enterprise in its territory under conditions of establishment and operation no less favorable than those accorded to its own service suppliers. It was also proposed that the Parties shall make available to international maritime transport suppliers of the other Party on reasonable and non-discriminatory terms and conditions the following services at the port: pilotage, towing and tug assistance, provisioning, fueling and watering, garbage collecting and ballast waste disposal, port captainâ&#x20AC;&#x2122;s services, navigation aids, shore-based operational services essential to ship operations, including communications, water and electrical supplies, emergency repair facilities, anchorage, berth and berthing services.

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The EU proposed also that Each Party shall permit the international maritime transport service suppliers of the other party to re-position owned/leased transport equipment such as empty containers, not being carried as cargo against payment, between ports of the US or between ports of a Member State of the European Union, and Each Party, subject to the authorization of the competent authority where applicable, shall permit international maritime transport service suppliers of the other party to provide feeder or relay services between their national ports.

To properly understand the above obligations, the EU defined the basic terms for international maritime transport services. From a legal point of view, it is very important since there are no universally accepted definitions of these terms, plus in some instances they are differently understood by stakeholders in partner areas negotiating the TTIP. For the purpose of this Proposal the following definitions were established: • international maritime transport services means the transport of passengers and/ or cargo by sea-going vessels between the US and the European Union or any non-Party. This includes the direct contracting with providers of other transport services, with a view to cover door-to-door or multimodal transport operations under a single transport document, but not the right to provide such other transport services; • door-to-door or multimodal transport operations means the transport of cargo using more than one mode of transport, involving an international sea-leg, under a single transport document; • international cargo means cargo transported between a port of one Party and a port of another Party or of a non-Party, or between a port of one European Union Member State and a port of another European Union Member State; • maritime auxiliary services means maritime cargo handling services, customs clearance services, container station and depot services, maritime agency services, and maritime freight forwarding services; • maritime cargo handling services means activities exercised by stevedore companies, including terminal operators, but not including the direct activities of dockers, when this workforce is organized independently of the stevedoring or terminal operator companies. The activities covered include the organization and supervision of: loading/discharging of cargo to/from a ship; lashing/ unlashing of cargo; reception/delivery and safekeeping of cargoes before shipment or after discharge; • customs clearance services (alternatively customs house brokers’ services) means activities consisting in carrying out on behalf of another party customs formalities concerning import, export or through transport of cargoes, whether this

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service is the main activity of the service provider or a usual complement of its main activity; container station and depot services means activities consisting in storing containers, whether in port areas or inland, with a view to their stuffing/stripping, repairing and making them available for shipments; • maritime agency services means activities consisting in representing, within a given geographic area, as an agent the business interests of one or more shipping lines or shipping companies, for the following purposes: marketing and sales of maritime transport and related services, from quotation to invoicing, and issuance of bills of lading on behalf of the companies, acquisition and resale of the necessary related services, preparation of documentation, and provision of business information; acting on behalf of the companies organizing the call of the ship or taking over cargoes when required; • freight forwarding services means the activity consisting of organizing and monitoring shipment operations on behalf of shippers, through the acquisition of transport and related services, preparation of documentation and provision of business information; • feeder services means the pre- and onward transportation by sea, between ports located in a Party, of international cargo, notably containerized, en route to or from a destination outside the territory of that Party.

5.7.4. EU proposed regulations on air transport services Chapter V, Section VIII of the EU proposal Transatlantic Trade and Investment Partnership; Trade In Services, Investment, and E-Commerce submitted for negotiations during 10th TTIP Round of negotiations, July 12-17, 2015 in Brussels (article 5-40) defines principles of liberalization of air transport services (Pursuant to Chapters II Section 1, and Chapters III and IV of the Proposal). It was assumed in Article 5-40 of the Proposal (item 2) that neither Party undertakes any obligation on domestic and international air transport services, whether scheduled or non-scheduled, and services directly related to the exercise of traffic rights, other than: • aircraft repair and maintenance services during which an aircraft is withdrawn from service (aircraft repair and maintenance services during which an aircraft is withdrawn from service mean such activities when undertaken on an aircraft or a part thereof while it is withdrawn from service and do not include so-called line maintenance); • the selling and marketing of air transport services (selling and marketing of air transport services mean opportunities for the air carrier concerned to sell and market freely its air transport services including all aspects of marketing such

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as market research, advertising and distribution. These activities do not include the pricing of air transport services nor the applicable conditions); • computer reservation system (CRS) services (computer reservation system (CRS) services mean services provided by computerized systems that contain information about air carriers’ schedules, availability, fares and fare rules, through which reservations can be made or tickets may be issued); • ground-handling services (ground handling services mean the supply at an airport of the following services: airline representation, administration and supervision; passenger handling; baggage handling; ramp services; catering; air cargo and mail handling; fuelling of an aircraft, aircraft servicing and cleaning; surface transport; flight operation, crew administration and flight planning. Ground handling services do not include security, aircraft repair and maintenance, or management or operation of essential centralized airport infrastructure such as de-icing facilities, fuel distribution systems, baggage handling systems, and fixed intra-airport transport systems); • Airport operation services (airport operation services mean the supply of air terminal, airfield and other airport infrastructure operation services on a fee or contract basis. Airport operation services do not include air navigation services; • Rental of aircrafts with crew; • Ownership and control of air carriers.

It was proposed that, in relation to the ownership and control of air carriers each party undertakes not to apply any limitation relating to ownership and control to natural persons or enterprises of the other party, including for the purpose of granting an operating license for the operation of air transport services.

5.8. Controversies over transport services in TTIP There has been a number of projected negotiating areas which were labeled to be likely to present particular difficulties during the negotiations by the US, EU, and individual countries. A list of these areas includes such items as: investor-state dispute settlement mechanism (ISDS), food standards, public procurement, intellectual property, financial services, and (most important for this chapter) air and maritime transport.

The British Parliament sources indicate that major sources of potential difficulties in agreeing on joint conclusions regarding transportation are differences in transport systems organization among the negotiating partners and different

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regulatory and market access systems. They indicated that the US applies stringent access and ownership limits to foreign participants in its air and maritime transport sectors. In particular, the EU airlines are unable to hold more than 25% of a US carrier. The Jones Act requires all waterborne shipping between US ports to be carried out by vessels built in the US that are owned, registered and operated

by Americans. The EU, which has a more open air and maritime sector, is keen to gain access to US markets. This may create a potential problem for the negotiations (Webb 2015).

As transpires from the above, the US cabotage market is totally closed to EU business both in air and maritime transport, the reverse does not hold for the EU. This has serious negative effects also on the EU express and courier services industry. Many of the additional regulatory barriers stakeholders have brought to the attention of the Commission are on the US sub-federal (i.e. state) level. As stated, for the maritime sector the, US Jones Act establishes the biggest barrier. The Jones Act (formally The U.S. Merchant Marine Act 1920) is a 1920 law that protects the US maritime industry from competition. It raises costs for many other industries, keeps foreign ships from helping when disasters like the BP oil spill strike. As a consequence of the Jones Act and its subsequent revisions, the European shipbuilding industry including ship repair and maintenance has been effectively excluded from selling vessels to be used in American coastwise trades. If the Jones Act would be partially lifted for European ship types, the European shipbuilding industry (including ship maintenance and repair, marine equipment) will be able to enter a new US market and to compete with the US industry on a fair level playing field.

5.9.â&#x20AC;&#x192; US trade unions opposition to TTIP transport sections On October 28, 2015, AFL-CIO Transportation Trades Department adopted a policy statement (Policy Statement No. F15-01) calling for US trade negotiators to keep aviation and maritime out of the TTIP. This resolution was a direct answer to the EU Proposal submitted to 10th round of negotiations. Major concerns of the AFL-CIO are focused on TTIP transport provisions impact on jobs. They argue that the EU proposal includes expansive sections on air and maritime transport services. If these regulations were adopted they would radically liberalize transport industries and seriously threaten entire industries and thousands of middle-class US jobs.

US trade unions have voiced their concerns since the beginning of the TTIP negotiating process. In 2013, when the US announced that it would be engaging

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the EU on free trade negotiations, TTD submitted detailed comments that warned against including aviation or maritime services in TTIP. AFL-CIO indicated that the EU proposal confirms their worries and the Obama Administration needs to make it clear to the EU that aviation and maritime services have no place in the TTIP negotiations.

They raise the following arguments to oppose TTIP transport provisions: • Globalization and ineffective trade policies may eliminate important middle class jobs in the United States. They argue that the world economy has become increasingly interconnected, aviation and maritime workers have been at the forefront of market expansion - transporting goods and people to every corner of the globe. At the same time, these employees are acutely aware of the effects that globalization can have on their jobs. When done correctly, and in the right forum, trade in aviation and maritime services can open markets and create good jobs for Americans. Bad trade policies that for a generation have defined our nation’s trade policies can easily weaken or ruin US industries and put thousands of people out of work.

• TTIP is overlapping with other international agreements. AFL-CIO also indicates that air traffic rights and related services have been largely excluded from broader trade negotiations, and have instead been negotiated through bilateral „Open Skies” agreements overseen by subject matter experts at the U.S. Departments of State and Transportation. Since 1993 the Open Skies regime has dramatically liberalized aviation trade between the US and its trading partners throughout the globe, with Open Skies agreements currently in place with over 110 countries including the EU. • Air transport is already significantly liberalized. AFL-CIO indicated in its policy statement that the landmark US-EU Air Transport Agreement signed in 2010, liberalized air services between the US and the EU’s 28 member states plus Iceland and Norway. This agreement eliminated virtually all restrictions on the ability of carriers to select routes, establish frequencies and set prices.

It also included, for the first time ever, a labor article and a process through which the parties can seek to address adverse effects of the agreement on aviation employees. Notably, the US negotiators rejected the efforts by the EU to force changes to the US rules and regulations limiting foreign ownership and control of US airlines. These rules have protected US aviation professionals from unfair competition, preserved basic labor rights and maintained America’s status as a world leader in air transportation.

• EU is attempting to change activities already regulated in other agreements US ownerships and control laws in air industry. AFL-CIO presents an opi-

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nion that having failed to weaken US ownership and control laws in the US Open Skies Agreement, the EU is now seeking to bypass that agreement and eliminate these laws through TTIP. They believe that including this proposal in any final agreement would threaten US aviation jobs, create unfair competition for US carriers, raise domestic security concerns and undermine the Civil Reserve Air Fleet (GRAF) program. Furthermore, allowing foreign interests to own and control US airlines would create a further economic incentive to outsource aircraft maintenance work. The EU proposal also contains new, broad definitions for „ground-handling services” and „airport operation services” that go well beyond language in previous trade agreements. AFL-CIO therefore insists that the Obama Administration must categorically reject these proposals and refer any further discussion of air services to the Joint Committee that oversees implementation of the US-EU Open Skies Agreement.

• TTIP wants to regulate maritime services which have been specifically excluded from free trade agreements because of their critical economic and national security importance. AFL-CIO indicates that similarly to aviation, maritime services, laws and policies have been excluded from multilateral, regional and bilateral free trade agreements. They reason that the US maritime cabotage laws collectively known as the Jones Act help sustain over 500,000 well paid American jobs and generate $100 billion in annual economic output.

By requiring that all ships engaged in domestic marine commerce are built in America and crewed by US mariners, the Jones Act ensures a pool of well-trained, loyal US-citizen mariners capable of supporting US armed forces, trade objectives, foreign aid programs, and national security.

• The EU TTIP proposal would dismantle US transport maritime system and eliminate US jobs. AFL-CIO presents an opinion that implementation of the EU proposal would effectively gut the Jones Act. They also have a notion that the EU proposal includes broad definitions that incorporate all aspects of maritime transportation, including cargo handling and longshore operations. If accepted, this proposal would harm American mariners, accelerate the already alarming decline of US-flag operators and seriously damage its economic recovery and national security. These reforms would also permit foreign entities that do not employ US employees and do not pay taxes to US treasury to operate with impunity on US inland waterways and along US coasts.

In sum, AFL-CIO stated that the US trade policy has expanded rapidly in recent decades, and the decisions that are made during trade negotiations have profound and often negative consequences on working people in the US. They indicate that trade agreements are no longer just about tariff rates, and they address a wide

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variety of issues including intellectual property rights, foreign direct investment, environmental protections, and regulatory reform. Despite the changing nature of trade agreements, negotiators have, to this point, rightly excluded aviation and maritime services from broader trade talks. These industries are far too important to the US economy and its national security to be lumped in with larger trade talks. That is the trade policy regime of the United States that has been upheld by Presidents from both parties and by Congress, no matter which party has held the majority.

As a result of the adoption of this policy statement, AFL-CIO and especially its aviation and maritime unions sent a letter to President Obama urging him to keep aviation and maritime out of TTIP. They indicated that at this stage of negotiations it is important that this Administration state clearly and publicly that the EU proposals will not be considered and that these services will not be part of the broader TTIP agreement.

5.10. EU trade unions position on TTIP transport regulations In August 2014, the European Transport Workers’ Federation, Maritime Transport Section (hereinafter: ETF MTS) has prepared a position paper on the Transatlantic Trade and Investment Partnership (TTIP) negotiations. This European trade union’s position is surprisingly similar to their US counterparts. In general, ETF fully supports the needs to: • conduct the TTIP negotiations with total transparency; • exclude any ISDS mechanism (Investor State Dispute Settlement) from the agreement; • exclude public services, including public transport from the text; • include in TTIP a strong, binding labor chapter that will strengthen and in no way weaken labor rights with a view to bring effective improvements to the citizens and workers living and working conditions; • safeguard the highest environmental and consumer protection standards.

They also recognize that the promotion of the EU-US trade in services and goods is likely to boost commercial activities and in turn increase shipping between these two major trade partners.

The ETF noted in its statement that the international maritime transport market is already largely liberalized and shipping operators from both the EU and the US enjoy this free market access and the absence of any major obstacle to international maritime trade. They also raised concerns that despite a clear success and

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strategic utility of domestic maritime laws and policies, the European Commission continues to insist on including maritime services, in whole or in part, in the TTIP. In the ETF opinion, the EU is attempting to incorporate these issues without providing evidence that such an inclusion would benefit the EU and US economies. It is also done without consideration of the detrimental impact it may have on the employment of national seafarers.

Similarly to the US trade unions, ETF also recalled that maritime services in the US â&#x20AC;&#x201C; EU trade and in particular maritime cabotage laws have historically been excluded from all multilateral, regional and bilateral free trade agreements negotiated by the United States because of their unique economic and national security benefits (based on the Jones Act). They believe that the safeguard of existing cabotage laws in those nations who have them while promoting such laws in other nations would make a fundamental contribution to the protection and sustainment of many national quality seafaring jobs, both in the EU and in the US. Based on these initial and general assumptions the European Transport Workers Federation prepared a number of recommendations to the negotiating parties.

First and foremost, they call for excluding shipping from the scope of the TTIP Agreement. This recommendation is based on the rationale that further liberalization of maritime transport services would undoubtedly harm national seafaring jobs. In addition to this position of principle, ETF calls for protection and promotion of cabotage regulations. They stress that, without prejudice to the provisions of the existing EU cabotage rules (EU Regulation 3577/92), which is the EU regulatory instrument for liberalization of maritime transport services within a Member State, whenever possible, maritime cabotage shall be reserved for national flag vessels of the country concerned. They also indicated that the retention and extension of cabotage at a national level to secure sustainable long-term employment for seafarers on board ships engaged in regular trades within a particular country, should be fully recognized (This is consistent with the Policy on minimum conditions on merchant ships as adopted by the International Transport Workersâ&#x20AC;&#x2122; Federation at its 2010 Congress in Mexico City (items 19 and 20). Based on this background, the ETF MTS calls upon the European Commission to recognize the importance of the retention and extension of cabotage at a national level to secure sustainable long-term employment for seafarers on board ships engaged in regular trades within a particular country.

ETF MTS also opposes any attempts to grant waivers to the US Jones Act during the TTIP negotiations. They reason that it is widely accepted that the Jones Act, by requiring that all ships engaged in domestic marine commerce are built in America and crewed by US mariners, has served an important economic role for the US since 1920, including the sustainment of thousands of good-paying Ame-

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rican jobs and the generation of a major economic output, allowing the country to continue to have a reliable source of domestically built ships and competent American crews to operate them. Consequently, they request the negotiating parties not to pursue changes in the US maritime policies through the TTIP trade negotiations and categorically reject any waivers or exceptions to the Jones Act. They further explain that it is common knowledge that European shipowners are making a strong case for granting full access to the US maritime market for international carriers engaged in feedering of international cargo operations (ships that travel point-to-point in the US but terminate overseas). Likewise, greater market access for offshore and dredging services, increased flexibility as regards transport of empty containers and the introduction of waivers for transport of shale gas and crude oil are also part of the European shipowners’ priority lists. The ETF MTS calls on the EU negotiators not to pursue the above-mentioned shipowners’ recommendations on the rationale that this is a profit-driven agenda which turns a blind eye to the potential negative impact on national seafaring jobs. Moreover, the ETF MTS is of the view that the expected EU shipping industry’s increased market share is unlikely to bestow benefits to the EU-domiciled seafarers and the safeguard of the European maritime know-how as a whole.

In the area of transport they also addressed issues related to establishing a level playing field in European waters to effectively address social dumping practices. In relationship to the above ETF recommends that instead of trying to undermine existing rules and fully justified restrictions on domestic cargoes in the US, it should be the EU policy makers’ duty to get some inspiration from a regulatory framework which has proved invaluable to protect national seafaring jobs and secure a vibrant and prosperous maritime cluster. They call on the EU policy makers to take effective and expeditious steps for regulating, through legislation, the highly unregulated intra community trade, by introducing for this sector a level playing field, so as to enforce acceptable social standards on board ships trading within the European Community and stop the downwards spiral in salaries and discriminatory practices on grounds of nationality and/or place of residence or flag of registration (by submitting a revamped Directive on manning conditions for maritime services operating between Member States).

5.11. EU shipowners position The European Community Shipowners’ Association (ECSA) presents a drastically different approach towards the TTIP international maritime transportation negotiations. Their opinion and recommendations obviously reflects different ob-

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jectives which shipowners have compared to trade unions’ interests (A statement 2014).

In principle, ECSA supports addressing maritime transport within TTIP. They reason that with 90% of all goods is transported by sea, thus, shipping is the backbone of the globalized economy. They reminded the negotiators that European shipowners enjoy a leading position in this global market, controlling 40 % of the world’s fleet. For container and Ro-Ro vessels, European shipowners share is even larger and amounts to 60%. They also stated that a major area for growth lies in the offshore sector. ECSA members share in the world fleet in this sector increased from 28% in 2005 to 37% in 2014. The EU includes the world’s largest fleet, and the world’s biggest shipping nations with long and proud maritime traditions, as well as of some of the largest and most renowned and innovative shipping companies.

ECSA indicates that their fleets trade most of their time outside Europe. This is why liberalization of global trade is so essential. This explains why shipowners are very much for including shipping to the TTIP talks. On the other hand, it is obvious that shipowners’ position reflects their interest in expanding business.

ECSA considers market access and legal certainty as key elements of the TTIP negotiations. Whilst European shipowners can enjoy the largely liberalized international shipping market in the US and vice-versa, this free market access is based on national and regional legislation, as well as international practice. It would greatly serve the legal certainty if these existing levels of market access would be inscribed in a bilaterally binding agreement. TTIP could in that respect also set the scene for a global agreement on liberalization of services, in the context of the Trade in Services Agreement (TISA) and, ultimately, a WTO agreement.

Major and primary concern of shipowners is the liberalization of international maritime transport services. They reminded the negotiators that restrictions on domestic cargoes, so-called cabotage rules, still firmly exist in the United States.

This results from Section 27 of the Merchant Marine Act of 1920 (Jones Act). Whilst it is true that restrictions on pure domestic cargoes may not constitute a prime barrier to international maritime trade, the Jones Act does have implications for the delivery of international cargo. Today’s reality of optimizing logistics operations, transport patterns and increased ship size, means that very often international cargo must be transshipped from one vessel to another, often smaller, vessel, in order to reach its end destination. Under the Jones Act, feedering of international cargo is currently restricted. The same goes for international relay of cargo. ECSA therefore recommends considering ways to grant full access for international carriers to engage in such operations. They consequently recommend that transport of cargo between US ports with an international bill of lading or comparable international

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transport document should not be qualified as cabotage and should therefore not fall under the restrictions of the Jones Act. ECSA also recommends providing greater market access by changing rules on offshore and dredging services. They reason that offshore vessels do not actually transport merchandise or passengers and this could create possibilities for non-coastwise-qualified vessels to operate in US waters. On dredging, they fully support the proposals made by the European Dredging Association (EUDA) on opening access to US dredging market to European companies.

Finally, European shipowners request more flexibility as regards transport of empty containers and the establishment of more frequent individual and industry waivers to the Jones Act as well as more flexible and clearer procedures to obtain them. An industry waiver for transport of shale gas and crude oil could for instance be considered.

They indicate that the maritime chapter of TTIP should not just focus on market access restrictions. There are several other fields where progress can be made, for instance in the field of administrative procedures, performance of standard work on board vessels and security procedures. The latter is especially a problem for our crews. Severe security measures in US ports make it virtually impossible for them to work on the quayside, assisting in loading and unloading operations, therefore creating a potential safety issue. To go on shore for rest and recuperation purposes is also a real bottleneck, making the seafarer profession far less attractive.

In conclusion, ECSA supports work towards a TTIP that will stimulate EU-US trade and will send an example for international trade liberalization. Shipping services should not be neglected as they constitute the backbone of international trade, providing new opportunities for both the US and EU. The above indicates that there are different points of view on the same issues.

It depends to a large extend from business interests of a given party. Shipowners want to earn more money and trade unions want to preserve their jobs at decent salaries. If you do not know what is all that about, it is about the money.

5.12. Opposition to Jones Act in the U.S. Congress The majority of U.S. Congressmen oppose cancelling the Jones Acts. There are, however, voices supporting changes in this old US policy. One of the most prominent U.S senators, John McCain filed on January 13, 2025 an amendment to repeal the Jones Act. He stated - “I have long advocated for a full repeal of The Jones Act, an antiquated law that has for too long hindered free trade, made US industry less competitive and raised prices for American consumers,” He said also “The amendment I am introdu-

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cing again today would eliminate this unnecessary, protectionist restriction. According to the Congressional Research Service, it costs $6 per barrel to move crude from the Gulf Coast to the Northeast United States on a Jones Act tanker, while a foreign-flag tanker can take that same crude to a refinery in Canada for $2 per barrel – taking money directly out of the pockets of American consumers. I hope my colleagues will join in this important effort to repeal this archaic legislation to spur job creation and promote free trade.”

5.13. Opinions supporting air transport exclusion from TTIP The Transportation Trades Department, AFL-CIO (TTD), wrote on May 16, 2015 a letter to Congress asking urging the United States Trade Representative (USTR) to keep air transport services out of the Transatlantic Trade and Investment Partnership (TTIP). They refer to the bipartisan letter being led by Reps. Michael Michaud (D-ME), Walter Jones (R-NC), Bill Foster (D-IL) and Michael Grimm (RNY) which states that air transport services should continue to be negotiated in the existing framework of bilateral “open skies” agreements rather than in a broader free trade agreement.

These Members of Congress argue that air transport services have historically been excluded from bilateral and multilateral free trade agreements and for good reasons. Given the unique nature of this industry, air transport services have been subject to a separate administrative regime under which the US has negotiated specific agreements with other nations. These negotiations have been led by the Departments of State and Transportation, two agencies with dedicated aviation personnel with the knowledge and expertise to best negotiate on behalf of the US aviation industry and its workforce. Since 1993 the US has entered into open skies agreements with 107 countries. These agreements have opened and expanded markets, and eliminated virtually all restrictions on the ability of carriers to select routes, establish frequencies and set prices, while also taking steps to protect the interests of US aviation workers.

Despite this historical precedence, the European Union (EU) is currently pushing to include air transport services in TTIP, and doing so with the goal of opening up our aviation industry and its workers to an unfair trade agenda. Specifically, we know that the EU would like to eliminate US rules that limit foreign ownership and control of US airlines and allow EU carriers to provide “cabotage” or point-to-point service within the US. The EU aggressively sought these changes in open skies negotiations with the US just a few years ago, but these efforts were rightfully rejected by the Administration. The EU now wants to bypass this exis-

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ting agreement, and the long-standing process of negotiating air transport agreements, and essentially renegotiate these issues in the context of TTIP. It is also important to note that these proposed changes to the US rules have no support on Capitol Hill. In 2005, the Bush Administration proposed a rule change to allow foreign entities to exercise actual control over US airlines. This proposal was roundly rejected by Congress and eventually withdrawn by the Administration. This Congressional letter will reinforce the support for negotiating air transport services through bilateral open skies agreements that promote market opening opportunities for US aviation while protecting the interests of US workers They also addressed the United States Trade Representative (USTR) understanding that they will attempt to negotiate a Transatlantic Trade and Investment Partnership (TTIP) with our allies in the European Union (EU). They expressed strong opposition to the inclusion of commercial aviation traffic rights traditionally covered by bilateral air services agreements from any agreement that may come out of these negotiations and respectfully request that the USTR inform the EU that issues covered by air services agreements will not be a part of the negotiations.

Historically, “air transport services” have been negotiated by the Department of State and Department of Transportation. These two agencies are well equipped to do this and possess the necessary expertise to negotiate on behalf of the commercial aviation industry and its employees. Agreements negotiated under this regime have reduced the number of trade barriers to international air transport services in a fair and equitable manner. Any request to add air traffic rights to the TTIP negotiations is an attempt by the EU to circumvent the established process for negotiating an air services agreement because they are not satisfied with the current US-EU air transport agreement. There is no reason to change an effective and efficient process that over the last 20 years has produced 107 “Open Skies” air transport agreements. They stated that in negotiating a free trade agreement with the EU, USTR will be negotiating what would be the largest free trade agreement in the history of our country. However, the USTR must dedicate its resources and expertise to negotiating in the sectors of our economy with which it has the most experience. This is a daunting task for USTR. For this reason, and the reasons mentioned above, they encouraged USTR to insist that agreements over matters pertaining to international air traffic rights will continue to be negotiated by the Department of State and Department of Transportation.

5.14. EU business position on transport services in TTIP BUSINESSEUROPE, a leading business organization in the European Union (EU), cited removal of US domestic preferences as one of its primary goals in the

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procurement negotiations under the US-EU Transatlantic Trade and Investment Partnership (TTIP). Many of these concern transport services. Its other goals include greater access to federal, state and local procurement and more uniformity in procurement procedures in the United States. The EU business group, whose members are national business federations of the EU Member States, described its TTIP interests in a December 2013 position paper on government procurement in the TTIP. The business group recognized that US procurement â&#x20AC;&#x153;may be more openâ&#x20AC;? than is indicated by US commitments under the WTO Government Procurement Agreement (GPA), which will serve as starting point for the TTIP procurement negotiations. Nonetheless, European companies believe they could benefit from broader coverage of procurement under the TTIP. BUSINESSEUROPE laid out the areas in which it is seeking broader and deeper coverage of federal and sub-central entities. The U.S already covers most of the federal entities in which it expressed a strong interest. Those that are not covered are: the National Railroad Passenger Corporation (AMTRAK), the Federal Aviation Administration and the Government Printing Office, as well as the American Water Works Association, a non-profit organization.

EU businesses echoed the objectives of the European Commission for coverage of the 13 states not covered by the GPA and the elimination of existing restrictions by the 37 states that are covered by the GPA. They also expressed interest in the reduction of thresholds applied by states under the GPA. (States open procurement of goods and services above $558,000.) Challenges of adding states to procurement obligations were outlined in an earlier posting on Challenges of Covering State Procurement in TPP and TTIP. The EU organization is also seeking the further opening of the procurement of large cities, including Atlanta, Boston, Charlotte, Chicago, Dallas, Denver, Houston, Los Angeles, Miami, New York, San Francisco, Seattle and Washington.

Three of those cities (Boston, Chicago and Dallas) already have committed under a 1995 US-EU Exchange of Letters to provide EU suppliers with best of out-of-city treatment when the city considers out-of-city suppliers in a procurement.

Among its highest priorities at the state and local levels, BUSINESSEUROPE cited access to public transportation agencies and energy efficiency/security/fire contracts. Its interests are focused on state departments of transportation and a broad range of transit agencies, such as the Chicago Transit Authority, the L.A. County Metropolitan Transportation Authority and the Washington Metropolitan Area Transit Authority. It also wants to participate in the procurement of a number of rail agencies, including METRA (Chicago area), Metrolink (southern California), BART (San Francisco Bay Area) and SoundTransit (Central Puget Sound).

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European business interest in the public transportation agencies ties into its request for removal of domestic content requirements that are attached to federal funds given to state and local governments for highway, railway and transit projects. These requirements are found in several laws, which are often collectively referred to as the “Buy America” Act (to be distinguished from the Buy American Act of 1933, which applies to federal procurement). These require the use of US-produced iron, steel and manufactured goods in federally funded projects administered by the Federal Highway Administration, Federal Transit Administration and the Federal Railroad Administration for the High Speed Rail Program.

European firms want to be able to participate in the projects without having to meet the “buy America” requirements. The US has never waived these domestic content requirements in any trade agreement.

BUSINESSEUROPE also cites the obstacles posed by two other laws that impose domestic content requirements. One is the Berry Amendment, which mandates that the US Department of Defense purchase clothing and apparel from US sources. The US excludes all goods covered by the Berry Amendment from its GPA commitments. The second law is the Jones Act, mentioned frequently in this book.

EU businesses further complain that this law prevents them from participating in US procurement of maritime services. This law is one of the reasons that the US excludes transportation services from its procurement commitments.

In addition to obstacles posed by domestic content requirements, BUSINESSEUROPE points to procedural obstacles, in particular the lack of nation-wide procurement procedures. Its call for a central website for all procurement opportunities may be, at least partially, addressed by the recent development by the Office of the U.S. Trade Representative of a link on its website to the procurement opportunities of all states covered by the GPA. This responded to a requirement of the recently revised GPA to provide a single portal for procurement notices by sub-central entities covered under the GPA. BUSINESSEUROPE presents an important perspective on the business community’s interests in the TTIP procurement negotiations. One of its most practical recommendations may be that the TTIP establish an expedited consultation process on public procurement to address concerns and future developments.

5.15. References [1].

A statement made during the TTIP Stakeholder Event in Brussels, July 16, 2014. The statement was delivered by ECSA Secretary General Patrick Verhoeven. Available at: http://www.ecsa.eu/9-latest-news/152-ecsa-looks-forward-to-fruitful-eu-us-trade-negotiations

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[2].

ETF MTS position paper on the Transatlantic Trade and Investment Partnership (TTIP) negotiations, Available at: http://www.etf-europe.org/files/extranet/-75/44193/MTS%20Position%20Paper%20on%20TTIP.pdf Francois, J., 2013, Reducing Transatlantic Barriers to Trade and Investment, An Economic Assessment, Final Project Report, March 2013 - Prepared under implementing Framework Contract TRADE10/A2/A16, Centre for Economic Policy Research McCain (US Senator) motion to repeal te Jones Act, http://www.mccain.senate.gov/ public/index.cfm/2015/1/senator-john-mccain-files-amendment-to-repeal-the-jones-act Negotiations for the Transatlantic Trade and Investment Partnership (TTIP), European Parliament resolution of 8 July 2015 containing the European Parliamentâ&#x20AC;&#x2122;s recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP) (2014/2228(INI)) P8_TA-PROV(2015)0252 Reading guide - publication of the EU proposal on services, investment and e-commerce for the Transatlantic Trade and Investment Partnership, July 31, 2015 Transatlantic Trade and Investment Partnership; Trade In Services, Investment and E-Commerce â&#x20AC;&#x201C; a textual proposal from the European Union, tabled for discussion with the US during the tenth negotiating round in Brussels, July 12 -17, 2015, and made public on 31 July 2015.

U.S. Trade Negotiators Must Keep Aviation and Maritime out of TTIP, Transportation Trades department, AFL-CIO, Policy Statement no. F15-01, Adopted October 28, 2015 Webb, D., 2015, The Transatlantic Trade and Investment Partnership, Breifing paper, Number 06688, October 6, 2015, House of Commons Library

[3].

[4].

[5].

[6].

[7].

[8].

[9].

CHAPTER 6

Concluding Remarks

This chapter concludes this book by presenting a number of thoughts and strategic conclusions. They are not intended to summarize and close the TTIP-related discussion. Just opposite, we recognize that this subject still requires broad debate and analyses. So, our remarks (and in fact the entire book) are presented and proposed with an objective to stimulate further research and dialog among all the interested parties.

The analyses completed in this book confirmed that there are many challenges before the TTIP negotiators. It may be difficult to complete these negotiations as initially scheduled, yet during the Obama Administration. On the other hand, one must share the opinion of the European Commission that the quality of the agreement is more important than completing these negotiations on time. Because of the importance of this agreement and its unique features all the elements must be thoroughly evaluated and negotiated. The scope of the agreement must be adjusted not only to the needs of the negotiating partners but also to real possibilities of achieving consensus. This requires, as indicated in the book deepening mutual trust and implementing innovative negotiating techniques and approaches. There are very many similarities between the US and EU economies. There are however, also some differences between their economic systems, support to particular industries, procurement systems, national preferences and requirements and many others. TTIP is not only about international agreements but also requires deciding about many aspects of functioning of domestic (internal) markets. This may require deep economic reforms and adjustments. The US trade policies decisions are made at the federal and state government levels, in the EU member states have lots to say about trade and investment promoting activities and regulations. This makes TTIP negotiations difficult. In any way, it seems that in light of approving TTP, and EU- Canada agreements, and low effectiveness of mutual trade negotiations at WTO, TTIP will have to be signed. What will be in this agreement and when it will be signed it is still a matter for analyses and deliberations. Public opposition to TTIP will have to be overcome. Education is a very important factor in accomplis-

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hing these goals. This book provides educational input and information to curious students, teachers, professionals, and general public. The analyses in this book led to a number of important conclusions. It was proven that the Transatlantic Trade and Investment Partnership (TTIP), if successful, would significantly deepen the relationship between the worldâ&#x20AC;&#x2122;s two leading economies and create the worldâ&#x20AC;&#x2122;s largest free trade area.

TTIP is a unique agreement. It addresses unlike typical trade agreements not only trade issues but also and in fact mainly non-tariff, administrative, and legal barriers. This agreement is negotiated by partners which have basically similar economic and social potential (although there are some differences between them as presented in the book). These negotiations are therefore, a multidisciplinary massive effort. They require involvement of economy, law, engineering, trade and many other experts. The negotiating parties must encroach on many interests and priorities and find mutually acceptable solutions. This is not easy. It was proven in this book when addressing various opinions and interests regarding the Jones Act and its impact on the competitive environment. These negotiations are especially difficult when many protectionist views are becoming more popular. It seems that the perception of advantages from economic globalization is changing. The US elections and expected changes of governments in some EU countries may shed a different light on trade and economic growth concepts and strategies, and even change national and international priorities. TTIP will also have a significant geopolitical impact. If the US-EU economic relations become closer and more efficient, these countries may regain leadership in promoting trade and expanding international exchange based on quality products, innovative services, and stimulating intensive economic growth.

TTIP is, as we stated in the book, a living agreement, things may change, therefore it would make sense to quickly sign the first part of the agreement and then, depending on developments negotiate additional areas. Unfortunately, transportation issues are very complicated for both sides. It is possible, that they will have to be put out temporarily on a back burner. On the other hand, transport issues are too often forgotten during trade negotiations. We must remember that any trade or economic agreement is successful only if it creates additional wealth and prosperity. If not it is only a useless piece of paper. Many times in our history politicians and economic experts forgot about the critical role which transport plays in world economy. As a result, not all possibilities created by economic integration were fully used.

TTIP may also play a very important role in accelerating economic growth of the US and EU. This trade and exchange of services may provide for faster and more efficient innovation, expansion and implementation of progressive rules and

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regulations, increasing exchange of advanced goods and services. The assessment of economic similarities and differences between the US and EU indicates that by close cooperation both partners may develop faster. Obviously this would require some adjustments in the US and EU, but is there any other way? TTIP promotes changes and progress versus stagnation and reduced growth. The US and EU are natural partners and as such should cooperate even closer. Not all citizens of the negotiating parties understand and support this agreement. This is a great challenge for the negotiators and politicians. We need more information on the negotiating process and on textual proposals. Also, final decisions should be made based on detailed evaluation of economic environment and impact of the proposed solutions. We hope that this book provided additional information and stimulated readers to further studies of this subject. When writing this publication, we realized that so many issues still have to be addressed. For example the proposed TTIP regulations on agriculture will impact basically every family in the US and EU and should be evaluated in detail. The proposed changes in automobile regulations and standards are also in the focus of interest of average citizens. We can expect that in the next several months important development will occur with regard to TTIP negotiations. It is obvious that the Obama Administration will want to conclude these negotiations while in office, and honestly they deserved it. The European leaders should also intensify their thinking and decision making processes regarding TTIP. This agreement is supposed to bring significant economic benefits. Political responsibility and economic acumen require that we act now. All the parties involved should iron out their differences, accept smart compromises and go forward. As Abraham Lincoln said â&#x20AC;&#x153;You cannot escape the responsibility of tomorrow by evading it today.â&#x20AC;?

Market Access

Category General Provisions

Duties / Other import â&#x20AC;&#x201C; export requirements

Trade in Goods

Nature and Scope of the Agreement Preamble and General Principles Objectives

Item

To eliminate all duties on bilateral trade; substantial elimination of tariffs; a phasing out of all but the most sensitive tariffs in a short time frame. Consider options for the treatment of the most sensitive products, including tariff rate quotas. All customs duties, taxes, fees, or charges on exports and quantitative restrictions or authorisation requirements on exports which are not justified by exceptions shall be abolished; Address concerns regarding remaining obstacles to trade in dual use items that affect the integrity of the single market.

EU Mandate

Eliminate all tariffs and other duties and charges on trade in agricultural, industrial, and consumer products between the United States and the EU, with substantial duty elimination on entry into force of an agreement, transition periods where necessary for sensitive products, and appropriate safeguard mechanisms to be applied if and where necessary.

Eliminate or reduce non-tariff barriers that decrease market opportunities for U.S. exports, provide a competitive advantage to products of the EU, or otherwise distort trade, such as sanitary and phytosanitary (SPS) restrictions that are not based on science, unjustified technical barriers to trade (TBT), and other â&#x20AC;&#x153;behind-the-borderâ&#x20AC;? barriers, including restrictive administration of tariff-rate quotas and permit and licensing barriers, that impose unnecessary costs and limit competitive opportunities for U.S. exports.

U.S. Mandate

Table A.1.1: EU mandate for negotiating TTIP: The EU Council Directives (A map of key issues)

Appendix to Chapter 1

APPENDICES

Provide the highest level of liberalisation captured in existing FTAs, in line with Article V of GATS, covering substantially all sectors and all modes of supply, while achieving new market access by tackling remaining long-standing market access barriers, recognising the sensitive nature of certain sectors. Provide transparency, impartiality and due process with regard to licensing and Trade in Services qualification requirements and procedures, as well as to and Establishment enhance the regulatory disciplines included in current US and EU FTAs. To grant treatment no less favourable for the establishment in their territory of companies, subsidiaries or branches of the other Party than that accorded to their own companies, subsidiaries or branches, taking due account of the sensitive nature of certain specific sectors. To mutually recognize professional qualifications.

Safeguards

General exceptions Antidumping and countervailing measures

Rules of origin

Negotiations will aim at reconciling the EU and US approaches to rules of origin in a manner that facilitates bilateral trade; the scope for cumulation with neighbouring countries that have concluded Free Trade Agreements (FTAs) with both the EU and the US will be considered.

The Agreement will include a general exception clause based on Articles XX and XXI GATT. The Agreement should include a clause on anti-dumping and countervailing measures, acknowledging that any of the Parties may take appropriate measures against dumping and/or countervailing subsidies.

To maximise liberalisation commitments, the Agreement should contain a bilateral safeguard clause by which either Party may remove, in part or in full, preferences where a rise in imports of a product from the other Party is causing or threatening to cause serious injury to its domestic industry.

Establish rules of origin that ensure that duty rates under an agreement with the EU apply only to goods eligible to receive such treatment and define procedures to apply and enforce such rules

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To address investment liberalisation and protection provisions including areas of mixed competence, such as portfolio investment, property and expropriation aspects, on the basis of the highest levels of liberalisation and highest standards of protection that both Parties have negotiated to date. The inclusion of investment protection and investor-to-state dispute settlement (ISDS) will depend on whether a satisfactory solution, meeting the EU interests is achieved.

TTIP should complement the outcome of the negotiations of the revised Government Procurement Agreement in terms of coverage (procurement entities, sectors, thresholds and services contracts, including in particular public construction). Provide enhanced mutual access to public procurement markets at all administrative levels (national, regional and local), and in the fields of public utilities, covering relevant operations of undertakings operating in this field and ensuring treatment no less favourable than that accorded to locally established suppliers. The Agreement shall address barriers having a negative impact on each othersâ&#x20AC;&#x2122; public procurement markets, including local content or local production

Investment Protection

Public procurement

Nothing in the Agreement should prevent the Parties from applying their national law, regulations and requirements regarding entry and stay, provided that, in doing so, they do not nullify or impair the benefits accruing from the Agreement. The EU and Member Statesâ&#x20AC;&#x2122; laws, regulations and requirements regarding work and labor conditions shall continue to apply. The high quality of the EUâ&#x20AC;&#x2122;s public utilities should be preserved. Services supplied in the exercise of governmental authority shall be excluded from these negotiations. Audiovisual services will not be covered by this chapter.

Investment: Secure for U.S. investors in the EU important rights comparable to those that would be available under U.S. legal principles and practice, while ensuring that EU investors in the United States are not accorded greater substantive rights with respect to investment protections than U.S. investors in the United States.

Ensure that U.S. investors receive treatment as favorable as that accorded to EU investors or other foreign investors in the EU, and seek to reduce or eliminate artificial or trade-distorting barriers to the establishment and operation of U.S. investment in the EU.

158 APPENDICES

Regulatory Issues And Non-Tariff Barriers

Technical regulations, standards and conformity assessment procedures

Sanitary and phytosanitary measures (SPS)

In reference to the WTO Agreement on Technical Barriers to Trade (TBT), the objectives would be to yield greater openness, transparency and convergence in regulatory approaches and requirements and related standards-development processes, also with a view to adopting relevant international standards. This is: to reduce redundant testing and certification requirements, promote confidence in our respective conformity assessment bodies, and enhance cooperation on conformity assessment and standardization. Consider labelling and means of avoiding misleading information for consumers.

requirements, in particular Buy America(n) provisions, and those applying to tendering procedures, technical specifications, remedy procedures and existing carve-outs, including for small and medium-sized enterprises, with a view to increasing market access, and where appropriate, streamlining, simplifying and increasing transparency of procedures.

Remove unnecessary obstacles to trade and investment, including NTBs, through effective and efficient mechanisms. Regulatory compatibility shall be without prejudice to the right to regulate in accordance with the level of health, safety, consumer, labour and environmental protection and cultural diversity that each side deems appropriate. The rules shall be binding on all regulators and other competent authorities of both Parties.

Seek greater compatibility of U.S. and EU regulations and related standards development processes, with the objective of reducing costs associated with unnecessary regulatory differences and facilitating trade, inter alia by promoting transparency in the development and implementation of regulations and good regulatory practices, establishing mechanisms for future progress, and pursuing regulatory cooperation initiatives where appropriate.

Build on key principles and disciplines of the World Trade Organization (WTO) Agreement on the Application of Sanitary and Phytosanitary Measures to achieve meaningful market access, including commitments to base SPS measures on science and international standards or scientific risk assessments, apply them only to the extent necessary to protect human, animal, or plant life or health, and develop such measures in a transparent manner, without undue delay; and to establish an on-going mechanism for improved dialogue and cooperation addressing bilateral SPS issues.

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Rules

Intellectual Property Rights

Sectoral provisions

Regulatory Coherence

Obtain fully reciprocal access to the EU market for U.S. textile and apparel products, supported by effective and efficient customs cooperation and other rules to facilitate U.S.-EU trade in textiles and apparel.

Intellectual Property Rights: Obtain, consistent with U.S. priorities and objectives, appropriate commitments that reflect the shared U.S.-EU objective of high-level IPR protection and enforcement, and to To cover intellectual property rights. To provide for ensustain and enhance joint leadership on IPR issues; hanced IP protection. TTIP shall not include provisions Identify new opportunities to advance and defend the inon criminal sanctions terests of U.S. creators, innovators, businesses, farmers, and workers with respect to strong protection and effective enforcement of intellectual property rights, including their ability to compete in foreign markets.

Include cross-cutting disciplines on regulatory coherence and transparency for the development and implementation of efficient, cost-effective, and more compatible regulations for goods and services, including early consultations on significant regulations, use of impact assessments, evaluations, periodic review of existing regulatory measures, and application of good regulatory practices.

Promoting regulatory compatibility in specific goods and services sectors, with the objective of reducing costs stemming from regulatory differences, regulatory harmonisation, equivalence, or mutual recognition. This should be in sectors of significant importance to the transatlantic economy, including, but not limited to, automotives, chemicals, pharmaceuticals and other health industries, Information and Communication Technologies and financial services, ensuring the removal of existing NTBs, preventing the adoption of new NTBs and allowing market access at a level greater than horizontal rules of the Agreement. Develop common frameworks for prudential cooperation in financial services.

160 APPENDICES

Small and Medium-Sized Enterprises

Trade related energy and raw materials

Trade and Competition

Sectoral Trade Agreements

Customs and Trade facilitation

Trade and sustainable development

Customs and Trade Facilitation: Establish disciplines to ensure transparent, efficient, and predictable conduct of customs operations and ensure that customs measures are not applied in a manner that creates unwarranted procedural obstacles to trade; and enhance customs cooperation between the United States and the EU and its Member States.

Environment: Obtain, consistent with U.S. priorities and objectives, appropriate commitments by the EU to protect the environment, including to conserve natural resources, and to effectively enforce environmental laws, and seek opportunities to address environmental issues of mutual interest.

State-Owned Enterprises: To address competition policy, including provisions on Establish appropriate, globally relevant disciplines on state antitrust, mergers and state aids, and state monopolies, trading enterprises, state-owned enterprises, and designastate owned enterprises and enterprises entrusted with ted monopolies, such as disciplines that promote transpaspecial or exclusive rights. rency and reduce trade distortions.

To address trade and investment in energy and raw materials. To ensure an open, transparent and predictable business environment in energy matters, and unrestricted and sustainable access to raw materials.

Small- and Medium-Sized Enterprises (SMEs): Address trade-related aspects of small and medium-sized Strengthen U.S.-EU cooperation to enhance the participaenterprises. tion of SMEs in trade between the United States and the EU.

To address labour and environmental aspects of trade and sustainable development. (promote trade in environmentally friendly and low carbon goods, energy and resource-efficient goods, services and technologies, green public procurement and support informed purchasing choices by consumers. To promote internationally agreed standards and agreements in the labour and environment for sustainable development.

To ensure effective controls and anti-fraud measures including inter alia commitments on rules, requirements, formalities and procedures related to import, export and transit, at a high level of ambition, going beyond commitments negotiated in the WTO. To promote modernisation and simplification of rules and procedures, standard documentation, transparency, mutual recognition of standards and cooperation between customs authorities.

To build on and complement existing sectoral trade agreements, such as the Agreement between the European Community and the United States on trade in wine, etc.

TTIP - The 21st Century Agreement 161

Other Rules Areas Self-explanatory Institutional Framework and Final Provisions To include provisions regarding other areas related to the trade and economic relationship where, in the course of negotiations, mutual interest was expressed in doing so.

The Commission will, in a spirit of transparency, reguInstitutional larly report to the Trade Policy Committee on the course framework of the negotiations. The Commission, according to the Treaties, may make recommendations to the Council on possible additional negotiating directives on any issue, with the same procedures for adoption, including voting rules, as for this mandate.

Transparency

The Agreement will include the commitment to consult stakeholders in advance of the introduction of measures with an impact on trade and investment; the publication of general rules and measures with an impact on international trade and investment in goods and services; Transparency as regards the application of measures having an impact on international trade and investment in goods or services.

To address full liberalisation of current payments and capital movements, and include a standstill clause. It will entail carve-out provisions (e.g. in case of serious diffiCapital Movement culties for monetary and exchange rate policy, or for pruand Payments dential supervision and taxation), in accordance with the Transparency provisions of the EU Treaty on the free movement of capital, and liberalisation of capital movements not linked to direct investment.

Transparency, Anticorruption, and Competition: Obtain improved transparency in the administration of EU and Member State trade and investment regimes, and rules that ensure trade- and investment-related measures are adopted and applied in an open and transparent manner that provides meaningful opportunities for public comment, notice, and review.

Obtain appropriate commitments on anticorruption.

Address matters of mutual interest regarding competition policy and process and to further improve cooperation on competition policy.

162 APPENDICES

The Agreement will include an appropriate dispute settlement mechanism, which will ensure that the Parties observe mutually agreed rules. The Agreement should include provisions for expedient problem-solving such as a flexible mediation mechanism. This mechanism will pay special attention to facilitating the resolution of differences in NTB issues.

To insure that TTIP is equally authentic in all official EU languages, shall include a language clause.

Dispute settlement

Authentic languages

Dispute Settlement: Establish fair, transparent, timely, and effective procedures to settle disputes on matters arising under a trade and investment agreement with the EU, including through early identification and settlement of disputes through consultation.

Provide and maintain meaningful procedures for resolving disputes between U.S. investors and the EU and its Member States that are in keeping with the goals of expeditious, fair, and transparent dispute resolution.

TTIP - The 21st Century Agreement 163

7-12 July 2013, Washington DC

11-15 November 2013, Brussels

2

Place

1

Round

A full range of topics that are intended to cover in TTTIP were addressed. This paved the way to for a good second round of negotiations in Brussels in October. The negotiating groups set out respective approaches and ambitions in as much as twenty various areas. They included: market access for 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. Negotiators identified certain areas of convergence across various components of the negotiation and in areas of divergence, begun to explore possibilities to bridge the gaps. The talks were based on a thorough review of the stakeholders views expressed to date. The negotiators met also in the middle of the week with approximately 350 stakeholders from academia, trade unions, the private sector, and non-governmental organisations to listen to formal presentations and answer questions related to the proposed agreement.

The negotiators made good and steady progress across the broad range of issues. They discussed investment rules, trade in services, energy and raw materials, as well as a range of regulatory issues, including regulatory coherence, technical barriers to trade and sectoral approaches. Talks on public procurement took place before the planned October meeting, cancelled due to the US government shutdown. In addition to the physical meetings in Brussels, video conferences took place covering plant health and hygiene measures, intellectual property rights, competition policy and small and medium enterprises. Video-conferences on tariffs and on sustainable development, including labour and environment, are planned for the coming weeks. Negotiators built on the discussions they started in the first round of talks in Washington in July. They made progress in identifying areas of common ground in order to start preparing for text-based discussions in rounds ahead. On investment, discussions continued on comparing respective approaches to investment liberalisation and protection. There was a good degree of agreement on getting an ambitious deal while confirming the Partiesâ&#x20AC;&#x2122; regulatory freedom to legislate in the public interest. The hope is to progress to detailed drafting of text in the rounds to come. On services, the EU and US compared their respective approaches on cross-border services, financial services, telecommunications and e-commerce. They also began setting out their respective market access interests in various services sectors. They agreed to discuss regulatory cooperation in financial services within the next two weeks. On regulatory issues, both sides agreed on the importance of horizontal rules and specific commitments in sectors. Negotiators, including regulatory experts, had a solid discussion on regulatory coherence and on possible elements for a chapter on technical barriers to trade going beyond WTO disciplines (so-called â&#x20AC;&#x153;TBT plusâ&#x20AC;?). They held detailed talks on a number of sectors in which both the EU and the US are keen to enhance regulatory compatibility: medical devices, cosmetics, pharmaceuticals, chemicals, pesticides, information and communication technologies (ICT) and automobiles. More sectors were moved for further discussions at the next round in December or in future rounds. On energy and raw materials, the EU and U.S. continued talks begun in July on how to develop a common approach to addressing the many challenges they face. Both sides see a predictable market for energy and raw materials as crucial for ensuring reliable supplies. The EU and U.S. also shared their experiences of previous FTA negotiations. They held detailed talks on specific issues that could be the subject of potential disciplines in this area.

Major Areas Addressed

Table A.1.2: TTIP - Subjects Addressed During Negotiations (November 30, 2015)

164 APPENDICES

3

Round

Major Areas Addressed

Talks will continue in December. At the end of the week, the EU’s chief negotiator Ignacio García Bercero, together with his U.S. counterpart Dan Mullaney, held a meeting with over 350 EU and US stakeholders representing non-governmental organisations, consumer groups, trade unions, and business and professional organisations. The chief negotiators briefed them on the week’s discussions and listened to stakeholders’ views on the talks. Welcoming the discussions with stakeholders, Mr García Bercero reiterated the EU’s commitment to continued engagement with them. The next round of TTIP were agreed to take place in Washington DC in the week of 16 December meaning that, despite the postponement of the second round, the negotiations would remain on track. After the December round, the two Parties decided to take stock, identify areas of convergence and areas where political guidance might be needed.

Both sides discussed all the topics they wanted to see covered in what is intended to be a comprehensive trade agreement.

They brought together teams with expertise in a wide range of trade-related areas, as well as regulators from both sides.

The EU and US teams also spent one of their five days together talking to over 50 stakeholders and answering questions from them. Negotiators made progress on the three core parts of the TTIP – market access, regulatory aspects and rules – and these will be the focus for the round of talks expected in March 2014. On market access, the EU repeated its determination to stay ambitious on all three aspects. It wants to slash customs tariffs on imported goods; allow firms from either side to bid for government procurement contracts; and open up services markets and make it easier to invest. Negotiators also had substantive discussions on regulations which protect people from risks to their health, safety, environment, financial and data security. Studies suggest up to 80% of the gains from any future EU-US trade deal would come from improvements in this area. EU negotiators now expect to start working with their US counterparts by March 2014 on the wording of provisions designed to make it easier to comply with each other’s existing rules, and to enable regulators to 16-21 work together more closely in future when drafting new rules. Such provisions would include rules on food safety and December 2013, animal and plant health (sanitary and phytosanitary issues). They would also cover technical regulations and product Washington standards, and testing and certification procedures, so-called technical barriers to trade (‚TBT) Negotiators also expect to DC be able to identify a roadmap of areas where the TTIP could bring real savings to consumers and businesses by avoiding having to pay twice over to meet two sets of regulations. Mr Garcia Bercero was at pains to point out that “TTIP is not and will not be a deregulation agenda.” He said neither side intended to lower its high standards of consumer, environment, health, labour or data protection, or limit its autonomy in setting regulations. The third area negotiators discussed was trade-related rules in several areas, which could provide a real boost to EU-US trade. These include measures to ensure: free and fair competition between firms; access to energy and raw materials; the protection of people’s rights at work, and the environment; and less red tape when importing or exporting (trade facilitation), for example, easier access to information on customs regulations, and simpler customs procedures. In a majority of these areas, the EU now expects to start discussing the wording of proposals by March 2014. The EU hopes such rules will deliver real and improved benefits for small- and medium-sized enterprises (SMEs) in particular, and envisages a specific chapter in the agreement focusing on SMEs.

Place

TTIP - The 21st Century Agreement 165

4

Round

Major Areas Addressed

Mr Garcia Bercero stated that a chapter targeting small- and medium-sized enterprises (SMEs) would be ‚a first for the European Union. It shows just how serious EU is regarding this issue. Smaller firms employ the vast majority of people in both the EU and the US. They account for two out of every three private sector jobs in the EU. And they’re the backbone of our economies, accounting for 99% of all businesses in the EU. TTIP would help them expand, generating jobs and growth on both sides of the Atlantic.’ The EU and US also published a document focusing on smaller firms. The document indicates how they could benefit from the agreement, and how the two sides plan to help those firms do so. This fourth round of talks came just a few weeks after EU Trade Commissioner Karel De Gucht met his US counterpart, Ambassador Mike Froman, to review progress so far in the negotiations. In addition to SMEs, EU and US negotiating teams spent the week discussing all three pillars of a future agreement: market access, the regulatory cluster and so-called rules issues.

Three was steady progress in all three negotiating areas: Market access – here negotiators discussed three core elements tariffs, trade in services and public procurement. On tariffs the EU and U.S. had already had an initial exchange of offers.

On services and public procurement, negotiators examined how to move towards exchanging offers. Regulation - negotiators were joined by a broad cross-section of experts and regulators from both sides to discuss: regulatory coherence and increasing regulatory compatibility; technical barriers to trade (TBTs), on which both sides had already made written proposals; sanitary and phytosanitary (SPS) measures, preparing the ground for written proposals in due course. The EU and the US also continued to explore ways of achieving greater regulatory compatibility in certain key industries: pharmaceuticals, cosmetics, medical devices, automotive, and chemicals. Rules – discussions included three areas where negotiators are developing innovative approaches: sustainable development, labour and the environment - to build on what is already covered by existing EU and US trade deals; trade in energy and raw materials, an area in which the EU wishes to include an agreed framework in TTIP; customs and trade facilitation - simplifying and streamlining procedures, especially important, since lengthy, complex customs clearance rules hit smaller firms the hardest and can deter entrepreneurs from selling overseas. A full day was spent with stakeholders: The European Commission and U.S. are determined to listen to and get feedback from everyone with a stake in the outcome of these negotiations. We are constantly seeking to improve the way we do this – and will continue to do so. In February EU launched the TTIP Advisory Group, comprising experts from trade unions, industry, and consumer and environmental groups. As part of these efforts, the EU also hosted two events on Wednesday 12 March with civil society during this fourth round. Negotiators interacted with and listened to 90 different presenters representing business, consumer, labour and environmental groups. The presentations enabled stakeholders to engage directly and in detail with negotiators, who in turn gained invaluable insights into the issues covered. Later in the same day, the EU and US Chief Negotiators met with over 300 stakeholders for two hours. They set out their view on the current status of the talks and next steps, and answered questions. Both the EU and US Chief Negotiators reaffirmed their commitment to making steady progress in all areas of the negotiations throughout 2014. They also agreed to hold a further round of talks in Washington before the summer. The European Commission agreed to confirm the dates as soon as these have been fixed on the dedicated TTIP webpages.

Place

10-14 March 2014, Brussels

166 APPENDICES

6

5

Round

Major Areas Addressed

Negotiators discussed trade in goods and services, investment (however without investment protection/ISDS), regulatory issues, sanitary and phytosanitary measures, government procurement, intellectual property rights, electronic commerce and telecommunications, environment, labour, small and medium-sized enterprises, and energy and raw materials. Consulting stakeholders, during the talks, EU and US negotiators held host meetings with non-governmental 19-23 organisations, consumer groups, trade unions, professional organisations, business and other civil society organisations) May 2014, to update them on the status of the negotiations and hear their views on the talks. This was a part of efforts to hear from as Arlington, USA wide a range of interests as possible. Two sessions were held. During one stakeholders delivered presentations to the negotiators on different policy areas. The presentations were open to the press. The EU and US Chief Negotiators debriefed stakeholders on progress to date with the negotiations, and the next steps in the process as they saw them. Stakeholders were able to put questions directly to the Chief Negotiators, and raise with them issues of concern or interest. This session was closed for the press. A Press Conference was also held as a closing event.

The negotiations concerned classic market access issues. The classic market access issues encompass the areas of tariffs, services and public procurement. For these three areas the EU and U.S have high ambitions. On services, for example, negotiators had detailed discussions on the basis of the offers that both sides had put on the table and that reflect the highest levels of commitments reached in existing agreements with other countries for example Korea. The objective was therefore to build from that and identify additional elements in TTIP which would go beyond respective bilateral, plurilateral or multilateral commitments. Procurement is one of the most fundamental elements of these negotiations (especially for EU) and both sides set as objective to substantially improve access to government procurement opportunities at all levels of government on the basis of national treatment. On this basis, negotiators discussed how to achieve ambition on all the items which need to be addressed in order to fulfill such objective including procurement by federal entities, the conditions attached to the use of federal funds for procurement by non-Federal entities, and the measures applied at the sub-federal level. Regulatory agenda: As in previous rounds, a lot of the time was devoted to the regu13-18 July 2014, latory agenda. Again, this was considered to be the most economically significant part of TTIP and what makes TTIP Brussels different from the other trade agreements. This is an area where a lot of the technical groundwork needs to be done with the full involvement of regulators. Negotiators again had thorough discussions, with the participation of regulators from both sides, on both the horizontal and sectoral elements of the regulatory agenda of TTIP. For those issues that cut across sectors, they continued to discuss how to ensure close regulatory cooperation between respective regulators on different areas of regulations including standards and conformity assessment and, of course, on everything that has to do with sanitary and phytosanitary matters. Much time was dedicated to discuss what can concretely be achieved on a number of specific sectors. There were nine sectors addressed with an intense engagement of the relevant regulators from both sides. Pharmaceuticals, cars, chemicals or engineering are examples of these sectors. Negotiators indicated that while there was technical work still to be done in these areas, they expected that over the next few months a clear understanding would be reached on what were the concrete objectives to achieve in TTIP and what were the steps that the regulators on both sides would need to take to fulfill these objectives within the time frame of the TTIP negotiations. Negotiators indicated that there was an unequivocal and firm commitment to the main guiding principle

Place

TTIP - The 21st Century Agreement 167

Round

Place

Major Areas Addressed

in these negotiations: nothing would be done which could lower or endanger the protection of the environment, health, safety, consumers or any other public policy goals pursued by the EU and U.S. regulators. That confirmed that enhanced regulatory cooperation is essential if EU and U.S. wishe to play a leading role in the development of international regulations and standards based on the highest levels of protection. TTIP should deliver concrete results in terms of enhanced regulatory compatibility in sectors. Other negotiating areas: During this week negotiators also held discussions in other negotiating areas such as sustainable development, labour, environment, energy, and SMEs. The nature of the discussions varied from area to area. As regards, for instance, state-to-state dispute settlement, they continued to work on the basis of a consolidated text and made progress in bringing their positions closer. They also finalized consolidated texts in areas such as SMEs or trade facilitation. For other areas, such as SPS for example, they expected to have textual proposals from each side before the next round of negotiations. In certain areas, such as sustainable development for example, they were engaged in thorough discussions on the different elements that they wanted to address in these negotiations so as to ensure that when we move to textual proposals this would reflect the high ambition we want to achieve in TTIP and respond to the legitimate expectations for such a 21st century agreement. Engaging with stakeholders: One of the highlights of these negotiations was again the opportunity to engage intensively with over 400 representatives of civil society, from consumers to environmental NGOs, from trade unions to public health representatives as well as with businesses. There were not only the large number of presentations made but also the many interesting ideas that were put forward on how to ensure that TTIP brings concrete benefits to citizens and businesses. Several interesting interventions were: a) European Social and Economic Committee indicated that transparency vis-Ă -vis stakeholders is not only important during the negotiating process but that negotiators should also reflect on how to ensure that civil society engagement in the monitoring of the implementation of TTIP once the agreement is up and running. The representatives of SMEs such as the UK Federation of Small Businesses, Chamber of Commerce of RhĂ´ne-Alpes, the Association of German Chambers of Commerce and Industry indicated and illustrated how TTIP could bring concrete benefits to SMEs, not only through the specific SME chapter, but also how other chapters of TTIP could be of relevance. Some of the points highlighted include the following: a) rules of origin should be trade facilitating, b) Unnecessary duplication of requirements can prevent SMEs from doing business across the Atlantic. Examples mentioned included the complexity of customs procedures, duplication of inspections of manufacturing facilities, duplication of certification requirements, need to present similar data to different regulatory agencies etc, c) Easy access to information on regulatory requirements and other conditions for export, through a web portal, is of crucial importance for SMEs. These meetings confirmed how important it is for negotiators to continue engagement with all stakeholders throughout the negotiating process.

168 APPENDICES

7

Round

Major Areas Addressed

With respect to regulatory issues, all negotiating areas in this pillar with the exception of textiles were covered. There was progress on technical work on the regulatory component and in particular on sectors. Discussions on market access consisted of market access texts, services and investment offers and agricultural non-tariff barriers. No negotiating sessions on tariffs, procurement, sustainable development, competition policy, rules of origin or financial services but many of those groups remain in regular contact inter-sessionally, including via DVCs. As in previous rounds, there were no discussions on investment protection or investor-to-state dispute settlement (ISDS). On services and investment, explanatory discussions continued on the EU services offer which had been tabled just ahead of the 6th round. At chief negotiatorsâ&#x20AC;&#x2122; level both sides reaffirmed their similar approach to public services â&#x20AC;&#x201C;reserving policy choices in this area for governments. Discussions also took place on further consolidation of texts of trade in goods and on agricultural non-tariff barriers. On the regulatory cluster, constructive discussions in most sectors with the heavy involvement of regulators. Both sides recognised the need to identify economically meaningful outcomes in sectors. TBT discussions continued to show differences in approach. Further clarifications on the US proposal on regulatory coherence were made. The EU's SPS proposal was discussed in detail. In the rules areas, discussions took place on customs and trade facilitation, energy and raw materials, IPR (including GIs), dispute settlement, SME's and legal and institutional issues. Progress was confirmed on customs, leaving the most difficult issues open. Discussions will continue between regulators on data alignment. On Energy and Raw Materials, discussions continued with an exchange of information between regulators on energy transit and third party access issues. On IP, the focus was on the principles and co-operation elements of a future IP chapter. On GIs, the EU shared economic evidence to illustrate need for better protection of EU GIs in the U.S.. Consolidated texts have been prepared in areas such as State Owned Enterprises, Small and Medium Sized Enterprises and Customs and Trade Facilitation.

Negotiators anticipated completing a consolidated text on Telecom Services in the near future. As in previous rounds; there was one day dedicated to stakeholder engagement. This took place in the format of presentations by stakeholders to lead negotiators (65 such presentations were made) and in a town hall 'type' meeting in which the two Chief Negotiators engaged with over 300 stakeholders representing a broad cross section of interests.

Place

29 September -03 October 2014, Chevy Chase, USA

TTIP - The 21st Century Agreement 169

9

8

Round

Major Areas Addressed

Discussions took place in nearly all the areas that will be covered in the agreement (except on ISDS/investment protection). There was steady progress at technical level on all three pillars. On market access, the round allowed for useful clarifications on industrial tariffs and agricultural market access. On services, a comprehensive review of the respective offers resulted on a better understanding on how to achieve an ambitious outcome, while respecting our sensitivities. The discussions on public procurement allowed a better understanding on each side priorities and sensitivities and showed that there is a need to intensify discussions in order to move the negotiations forward. The horizontal regulatory pillar consisting of Technical Barriers to Trade (TBT), Sanitary and Phytosanitary (SPS) issues (food safety and animal and plant health) and Regulatory Co-operation/Coherence and Transparency was an important focus of this negotiating round.

The EU submitted a text for a horizontal Regulatory Co-operation chapter. On SPS, the two sides discussed in detail the 02-06 February U.S. text proposal tabled in advance of this round and agreed to start working on developing a consolidated text. On TBT, 2015, Brussels the exchanges reflected willingness to progress; however, further discussions would be needed to bridge the divergences between views. Steady progress was achieved on sectors. However, the discussions highlighted the complexity of the issues and a need to intensify discussions over the next months. In the rules area, there was a common understanding that in TTIP both sides are seeking a high level of ambition for the Sustainable Development, Labour & Environment chapter.

Gradual progress was achieved on state-to-state dispute settlement, Customs and Trade Facilitation and SMEâ&#x20AC;&#x2122;s. On Intellectual Property Rights, discussions continued with a view to further fine-tune the shortlist of issues to be included in a future chapter. As in previous rounds, the chief negotiators and their respective negotiating teams, had the opportunity to spend a day meeting and hearing from over 400 civil society representatives from business and industry, professional associations, consumer bodies, environmental groups and the labour movement.

The negotiating sessions encompassed a very broad range of subjects with a view to consolidate the work in all three pillars of the negotiations. The round focused particularly on the regulatory and rules pillars. On market access, technical discussions continued on tariffs and public procurement. The round did not cover the services area, in which negotiators were preparing for an exchange of revised offers ahead of the next negotiating round. In the regulatory cluster, discussion continued on all horizontal aspects (SPS, TBT and Regulatory Coherence). The EU side presented its revised propo20-24 April sal for regulatory cooperation, including at sub-central level. In the area of TBT, both sides outlined steps that could be 2015, New York taken on conformity assessment. In-depth technical discussions continued on all nine sectors covered by the regulatory pillar. In the rules area, all issues have been covered except Trade and Sustainable Development/Labour/Environment for which the EU aims to present a text by the July round. Incremental progress was made in some areas, notably on customs and trade facilitation, energy and raw materials and state to state dispute settlement. The two sides also discussed the two papers put forward by the EU in the field of IPR. As in previous rounds, the two negotiating teams organized and attended a stakeholder session attended by some 160 civil society representatives.

Place

170 APPENDICES

11

10

Round

Major Areas Addressed

Talks covered a broad range of subjects across the three TTIP pillars. On market access discussions covered services, rules of origin, market access goods text and agriculture market access text. No discussions took place on tariffs or procurement during this round. Second services offers were exchanged and the EU also tabled its first services text proposal. All regulatory issues were discussed including regulatory co-operation/coherence, TBT, SPS, and the nine sectors 13-17 July 2015, under consideration. Technical progress was made in the regulatory pillar but there remains significant work ahead. All Brussels rules issues were discussed during the week, with the exception of sustainable development/labor & environment and investment protection and its dispute resolution. On Sustainable Development, the EU highlighted that it will present its text proposal in September. Constructive discussions took place on competition, state owned enterprises, subsidies and SMEs. In light of the G7 conclusions, parties agreed to work inter-seasonally in many areas.

Talks covered the full range of areas under discussion, with the exception of investment protection and an Investment Court System. On market access, second offers on tariffs were exchanged, covering 97% of tariff lines. The Parties also exchanged proposals for product-specific rules of origin. Progress was made in the negotiations on the general text on trade in goods. Discussions also took place on texts on agricultural market access. In addition, teams finished working 19-23 October through revised services and investment offers. Negotiators on public procurement engaged in technical discussions 2015, Miami, ahead of an exchange of offers to take place in February 2016. All regulatory issues were discussed, including regulatory USA cooperation, technical barriers to trade (TBT), sanitary and phyto-sanitary measures (SPS) and the nine industry sectors under consideration. Technical progress was made in most areas, though significant work remains ahead. On rules, the EU tabled its proposal on sustainable development. Discussions took place on all the rules topics listed below. The Parties agreed to accelerate their work between negotiating rounds, in line with our objective of making significant progress in the current phase of the negotiations. Several groups will meet again before the next round in Brussels.

Place

TTIP - The 21st Century Agreement 171

General

TTIP: Part 1: Market Access will include four chapters: Chapter 1.1. Trade in goods and customs duties, Chapter 1.2. Services, Chapter 1.3 Public procurement and Chapter 1.4 Rules of origin.

TTIP Part 1: market Access

It expected that the final TTIP document will include three chapters: Market access, Regulatory cooperation and Rules. The following General presents major objectives, possible final content, and lists of most difficult issues for negotiations.

Chapter Objectives – Overview This first part of TTIP – Market Access will address issues typical for each trade agreement. The major objective of this chapter is to help companies top get better access to the U.S. and EU markets. This concerns all types of companies including large, small and medium size, and involved in all type of business. TTIP would ensure that firms could: a) export and import more (goods and services), b) win Market Access more government contracts; c) determine according to the established rules where products were manufactured, and invest easier and more easily. The areas for TTIP negotiations in the market area subjects are:a) trade in goods and customs duties, b) services, c) public procurement, d) rules of origin.

This element of the negotiations addresses areas new for trade agreements concluded by the European Union (the United States has already addressed them in several other agreements). As a new area this may be a challenging task for negotiations. A major objective here is to set the U.S. and EU regulators to initiate close cooperative relationships and actions.

This area for negotiations is important since the U.S. and EU firms must meet partners’ rules on standards. It often occurs that these Regulatory coo- rules ensure the same level of safety or quality, but differ in: their technical details; and inspection procedures which unnecessarily peration increases costs of trade. These costs are particularly important for small and medium size firms. Both partners intend to strictly adhere to high levels of protection for people and environment.

The TTIP regulatory cooperation section will address: a) regulatory coherence and cooperation, b) technical barriers to trade (TBT), c) Food safety and animal and plant health (SPS), d) detailed issues related to selected industries namely: chemicals, cosmetics, engineering, medical devices, pesticides, information and communication technology (ICT), pharmaceuticals, textiles, and vehicles.

This element of TTIP agreement will establish new rules to help firms to: a) fully benefit from TTIP, (this especially concerns especially small and medium size companies); b) increase accessibility of energy and raw materials, and c) protect intellectual property in economic relations (especially these concerning research results, innovation and ideas behind new products); d) invest with confidence (with providing protection mechanisms), e) save time and money on customs procedures (buy their elimination or simplification).

This chapter will also address measures to insure objectives of sustainable development while expanding trade and investment beRules tween the partners. Also, a mechanism for addressing possible disputes between governments will be addressed. In sum, this negotiating area will provide new rules to make it easier and on fair terms to export, import, and invest. In detail it will encompass rules regarding: a) sustainable development including labor rights, energy and raw materials (ERM), b) customs and trade facilitation (CTF), c) small and medium size enterprises (SME) rules, d) investment protection, competition, intellectual property (IP) and geographical indications (GI), and e) government to government dispute settlement (GGDS).

A review of major issues for negotiating TTIP

Table A.1.3: TTIP – Major Issues for Negotiating TTIP (November 30, 2015)

172 APPENDICES

1.2. Services

1.1. Trade in goods and customs duties

A review of major issues for negotiating TTIP

Assumptions: Cutting or fully eliminating customs taxes on goods and other barries which should lead to reducing costs of international trade between partners. This should also stimulate the economy and create jobs and help companies grow and compete worldwide Justification: Tariffs (customs duties) increase costs of trade. Currently average customs duties between the EU and the United States are generally low, and amount to about 2 to 4 percent. These average values hide high tariffs for some products. Over half of EU–US trade is not subject to customs duties. Other are subjects to various duties, ranging from 1 to 3 percent for goods such as raw materials, and 30 percent for goods like clothes and shoes. Some customs duties are prohibitively high. As a result they practically eliminate international trade. This concerns for example US duties exceeding 130 percent on selected dairy products or peanuts. U.S. and EU impose different duties on the same products. For example duties for cars differ significantly - EU duties on cars imported from the U.S. are is 10% while US duties on imports from the EU are only 2.5%. Another example are duties on rail cars - the U.S. imposes 14% duties on imports; and EU charges only a 1.7% imports duty. This is not stimulating growth of mutual trade. The negotiating partners want to remove these duties and other barriers (non-tariff-barriers) to trade (for example lengthy administrative procedures and checks) Objectives: It is expected that TTIF would remove nearly all customs duties on EU–US trade. As a result immediate savings for companies would occur, and this would result in an economic spillover effect – lower tariffs would lower the cost of trade, which would increase sales, and result in creation of jobs, and increase the overall demand in both economies.

Sensitive or controversial issues: There are differences in approach on time factor in reducing tariffs. If tariffs are eliminated immediately this may according to EU pose difficulties for some EU firms. Consequently, EU wants to agree on a phasing –out period allowing firms to adapt to new market trends. EU goes even further they indicate that in some cases they wish only partially open the EU market.

The U.S. negotiators prefer faster and fuller tariffs elimination Assumptions: This TTIP element should make it easier to for services companies to compete at each other’s markets, and at the same terms as these granted to national entities. Also, some safeguards excluding government public services form this accord may be needed (especially per decision of EU states) Justification: Services are a backbone of both the EU and the US economies. In EU they account for as much as 60% of the economy and jobs. The EU and the U.S. already export a lot of services to each other. There are however, limitations in accessing these markets by the negotiating partners. This has been especially indicated by the EU sources. The negotiated rules will reduce or totally cut the existing barriers to trade including limitations to ownership by foreign entities. (This issue is especially important for EU). The negotiators would also protect sectors that are sensitive for the EU or the United States, for example public services. Also, appropriate governments would have the right to set quality or safety standards and individually regulate some services and their deliveries.

Objectives: The following benefits should be realized by businesses and professionals: Access meaning barriers that businesses encounter in some sectors, for example telecommunications. Eliminating limits on shareholder ownership US and EU companies, and addressing limitations in accessing specific activities such as: dredging of harbours, ports or waterways to remove mud or rocks.

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1.3. Public procurement

A review of major issues for negotiating TTIP

Mobility meaning enabling professionals, for example architects to practise in other market by recognising each other’s qualifications and enter U.S. and EU territories more easily. Licensing and approvals issues are also discussed and seek agreement on high standards that make it faster and clearer for individuals and firms to get licences or formal approval to offer services like auditing; management consultancy; legal advice. New rules are also tackled to establish rules for industries that are key to bot partners’ economies like telecommunications; e-commerce; financial services; postal and courier services; and maritime and air transport. This should ensure that that EU and US firms can compete on equal terms in either market; governments will treat EU and US firms in the same way; and establish platforms for regulators to work together more closely in future. Certainty is understood that the firmest possible guarantees will be set by the partners to insure that their companies will have at least the same access to their respective markets. Protection will safeguard some sensitive sectors, such as: TV, radio and films; public health and education; social services; and water distribution.

These areas may be excluded from the TTIP negotiations.

Sensitive or controversial issues: Public services: There are EU opinions that TTIP threatens the special role of public services in sectors such as health, education, social services or water. Because of that EU does not want to make any commitments for publicly funded health, education or social services. The same applies to the collection, purification and distribution of water. EU position is that EU Member States can take any measures they wish now and in the future in these areas. Culture: The EU indicates that TTIP jeopardizes cultural diversity in Europe. Consequently, EU opposes TTIP commitments for film, radio or television. The believe that EU Member States should be allowed to take any measures they wish in the culture sector for example to impose quotas for EU production. Data Protection: The EU is afraid that With TTIP, personal data will not be protected anymore. To respond to that EU is against including data protection standards to TTIP negotiations. The EU negotiators will make sure that the EU’s data protection laws prevail over any other commitments.

Assumptions: This chapter will address issues related to providing companies with options to easily bid for public contracts. This issue is especially important for EU. They indicate in many documents that TTIP should enable EU firms to bid for more public contracts in the United States, and services that US public authorities buy; and to compete with US firms on the same terms.

Justification: Tendering for public contracts is about how public authorities spend taxpayers’ money when buying goods, works or services. The EU and the United States have the largest public contracts markets in the world and have rules aimed at ensuring public money is spent in a transparent, efficient and non-discriminatory way. The EU negotiators indicate that companies currently face obstacles in winning public contracts across the Atlantic. In some cases foreign companies are even eliminated from bidding for such contracts. EU believes that TTIP provides an opportunity to: a) remove remaining obstacles; b) ensure that EU and US firms can bid for public tenders on equal terms. They stress that further opening up public procurement across the Atlantic would be good for both the EU and the United States. They reason that for public authorities with tight budgets, such an approach can result in better value for money; more choice; greater economic efficiency; and finally good governance. For companies it could increase demand for their products or services; create opportunities for growth; and safeguard existing jobs and create new ones.

Objectives: The partners should agree on rules that will ensure that EU or US companies are not discriminated against when tendering for public contracts on each other’s market; agree on rules to maximise transparency in tendering for public contracts to ensure EU and US firms are aware of opportunities across the Atlantic; maximise the opportunities for EU and US firms to participate in public tenders at all government levels, whether central or sub-central, federal or state, without being discriminated against.

174 APPENDICES

TTIP: Part 2: Regulatory cooperation The overall objective of this part of TTIP is, as defined by EU: Cutting red tape and costs without cutting corners. This part contains two types of chapters: horizontal chapters and specific regulations on selected industries which are of particular interest of the negotiating partners.

General Horizontal chapters are: Chapter 2.1 Regulatory cooperation, Chapter 2.2 Technical barriers to trade (TBTs), and Chapter 2.3. Food safety and animal and plant health in TTIP. Specific Regulations (Selected Industries) chapters are: Chapter 2.4. Chemicals, Chapter 2.5.

Cosmetics, Chapter 2.6 Engineering products, Chapter 2.7 Information and communication technologies (ICTs), Chapter 2.8 Medical devices, Chapter 2.9 Pesticides, Chapter 2.10 Pharmaceuticals, Chapter 2.11 Textiles and Chapter 2.12 Vehicles.

1.4.Rules of origin (ROO)

A review of major issues for negotiating TTIP

Sensitive or controversial issues: There are no specific sensitive issues in this subject area. The general objective defined as opening up public tendering markets on the basis of rules on transparency and non-discrimination is however complicated mainly because of differences in legal regimes and approaches of the negotiating partners. It has been established that TTIP will not affect public authoritiesâ&#x20AC;&#x2122; ability to choose to outsource public services or produce them in-house; capacity to choose goods, services and works that promote: health care systems, environmental protection, social progress and enforcement of labor rights.

Assumptions: These TTIP provisions will provide rules that determine where a product is from, and consequently which products benefit from TTIP. These rules should result in user-friendly rules that guarantee that products benefiting from TTIP really are produced in Europe or the United States Justification: ROOs are a key part of any trade agreement. They determine rules under which and when products can be made in the countries that have signed that agreement. They should guarantee that only products genuinely linked to those countries can benefit from trade agreements such as customs free exports or imports. Other products (form other countries or manufactured not according to ROO, do not enjoy similar benefits).

TTIP should insure that ROO in this agreement meet industry needs, promote trade and investment across the Atlantic. The partners want to agree on common ways to determine where a product is produced, and common rules on proving products origin.

Objectives. TTIP should insure simpler rules of origin that: can be easily understood and applied by producers and exporters; consider future trends in production, encourage innovation. Also appropriate and efficient procedures should be negotiated to insure that ROOs can be applied effectively, limit fraud and clear unnecessary obstacles to trade between the TTIP partners.

Sensitive or controversial issues: None as reported by the date this publication has been prepared.

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2.1. Regulatory cooperation

A review of major issues for negotiating TTIP

Assumptions: The partners wish to agree on ways to cooperate to set new rules which are more compatible with each other and would n boost jobs and growth, and offer consumers more choice.

Justification: There were significant changes in the World trade patterns in the recent twenty years. Deepening globalisation results in increased division of labor. At the same time more exporters face serious challenges and obstacle in meeting different countries’ national and regional rules and regulations. For example, to export to the United States, EU firms must comply with US regulations, and opposite. This significantly increases costs of trade, and is especially felt by smaller and medium size firms, In many areas US and EU rules are very different, for example requirements for coloring wiring, plugs or sockets used in electrical devices and instruments.

This creates additional costs to make the same product for the US market by EU firms, than it does for the EU market. So, the idea is to lower these costs without lowering levels of consumer protection, care of people’s health, well-being and rights; environment; and economic sustainability. Accomplishing these objectives would obviously spur economic growth and jobs, and deliver more choices for consumers.

Objectives. The negotiating partners want to agree on ways for EU and US regulators to work together more closely when they: a) develop new regulations; b) review existing regulations that affect EU–US trade and investment in a major way. As a result they would create more opportunities to raise the quality of products and services; lead to requirements for products in the EU and the United States that are more similar to each other than they are now; lower the costs for firms of meeting those requirements. TTIP would set up ways for regulators to start working closely together on a particular area; exchange information, and consult with each other. While striving for standardization, and important issue will be to safeguard areas for each side’s right to regulate in the public interest; and insure regulators’ independence. The negotiating parties also wish to work together to promote international cooperation on regulatory issues; and implement internationally agreed approaches to trade and investment regulation.

Finally, while negotiating TTIP, the U.S. and EU wish to create institutions to insuring that the agreed standards and measures will be implemented and to identify possible new initiatives where regulators could work together.

Sensitive or controversial issues: There are several controversial issues in this area of TTIP. There are differences in opinions on levels of protection resulting from TTIP. There are opinions that TTIP negotiations will lower protection for consumers and the environment.

In response to this public criticism, both parties committed to keep highest possible levels of protection. To accomplish that in the areas where a compromise is possible, EU and US joint regulations will provide similarly high levels of protection and will be made compatible. In other areas where full consensus cannot be achieved both parties will preserve their different levels of protection. Some sources raise issues regarding rights to regulate and indicate that TTIP will affect the EU’s right to pass new regulations. To avoid this situation the partners will insure that TTIP will reaffirm governments’ right to regulate individually to achieve legitimate public policy objectives. With regard to principles for regulation some entities indicate that TTIP and in particular the regulatory cooperation body it will set up, will circumvent parliaments, governments or stakeholders’ roles in the regulatory process. In response, the partner will insure that TTIP will not change the rules set out in international (concluded by EU or the U.S.) treaties about how regulations are made.

176 APPENDICES

2.2. Technical barriers to trade (TBTs) in TTIP

A review of major issues for negotiating TTIP

Assumptions: This TTIP element is directed to reducing barriers to EU-US trade from differences in things like labelling or safety testing. This will lead to cutting costs of complying with each otherâ&#x20AC;&#x2122;s standards Justification: There is a need to improve the way the EU and the US work together on technical requirements for products; reduce unnecessary repetition and costs of procedures in place for checking products; facilitate access to information on rules applicable to products.

Technical requirements exist in all sectors of the economy, and affect most internationally traded products. For example this concerns: safety of toys; safety and energy efficiency of domestic appliances, car lights etc. These technical requirements can be created by mandatory technical regulations and voluntary standards that determine products as to its size and shape; design; labelling, marking and packaging; function and performance. These if not coordinated can obstruct trade. They are called technical barriers to trade (TBT).

This term involves also procedures used to check whether a product complies with these requirements. They are known a conformity assessment procedures and can include: product testing; inspection; or certification. These standards are usually introduced in the public interest mainly to protect human health and safety; animal and plant life and health; environment; and consumers from deceptive practices. EU sources indicate that EU and the U.S. often share similar aims regarding technical regulations, however their actual standards and procedures for checking products sometimes differ widely. This creates unnecessary obstacles to trade (TBTs). TTIP will address these issues and strive to their elimination.

Objectives: Both partners intend to use as much as possible international standards (for example agreed on by International Organization for Standardization (ISO)) to make it easier to export and import. These standards are widely used around the world (and in the U.S and EU). They eliminate or at least reduce unnecessarily duplicative or burdensome procedures for checking products; ensure easy access to information on regulations and standards that apply to goods in the US and the EU; improve cooperation between EU and US standardisation bodies when developing new standards. If this part of TTIP is successful, it will reduce (or in many areas eliminate) differences. Consequently, the partners may be able to agree on common standards; and get more transparency in their relevant system of establishing and enforcing standards.

Sensitive or controversial issues. As stated in preceding paragraphs, U.S. and EU technical requirements and procedures are in many areas fundamentally different. Governments and firms have invested in and established many standards and regulations. This creates some sensitivity in this TTIP area. Major area of concern is security levels for ICT. Some sources indicate that TTIP will result in lower security levels for commercial ICT products. Both partners stated that they will not accept lower levels of security. The idea is to establish common principles for assessing how products comply with the existing regulations. This is one of the most difficult areas for negotiations.

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A review of major issues for negotiating TTIP

Assumptions. Regulations in this chapter of TTIP will insure that mutually traded food, animal and plant imports are safe. This will be accomplished while protecting and coordinating EU and U.S. strict standards. They are often different and based on unalike principles.

The planned coordination of regulations would cut the time for food imports to cross borders and joint activities in the future on animal welfare and maintaining high food safety standards.

Justification: Imports of animals, plant materials and food products may pose a significant risk to livestock, plants and human population of the negotiating partners. These are so called sanitary and phytosanitary (SPS) issues and border trade controls. These controls and checks add significant time and costs to exports and imports. EU and U.S. laws ensure a high level of protection. It is often that these two countries use different means and definitions and also requirements for SPS issues and requirements. This frequently leads to costly duplication of checks on products that have already been proved to be safe by either country. These checks are often lengthy and burdensome (this reflects opinions submitted by for example shipping companies and port managers). EU provides an example of European peaches. They indicate that the process of getting them approved for sale in the US market has been deliberated for more than eleven years with no final result and agreement. This status quo eliminates EU producers form the U.S. markets. This element of TTIP will be directed to minimise effects of regulations on trade by encouraging EU and US regulators to work together; respect legitimate goals to protect human, animal and plant health; remove unnecessary trade barriers; improve transparency and provide clear timelines for 2.3. Food safety approving imports or new products. and animal and Objectives: TTIP should create a privileged partnership based on pragmatic and speedy procedures and decisions on regulations replant health. lated to trade; a single approval process for exports and imports for example similar to a single approval process for US exports to the (Sanitary and EU; clear and transparent processes; a basis for future joint actions and activities including on animal welfare allowing the negotiating phytosanitary partners to avoid differences that hinder trade; strong mechanisms for resolving trade issues related to SPS. (SPS) issues) Sensitive or controversial issues. There are a number of sensitive issues in this area of negotiations. With regard to food safety. EU interests indicate that ‚TTIP will lower EU food safety rules, which are higher than those in the US. TTIP will open a race to the bottom. First and foremost, many assessments indicated that it’s not true and in many areas the U.S. regulations are more detailed and challenging.

From the beginning of the negotiations, the US and EU have made it clear that TTIP will not impact or alter existing food safety rules (unless specifically agreed by the parties and appropriate governments). For example, in the very sensitive area, the EU will keep its restrictions on hormones or growth promoters in livestock farming just as the US will keep its rules on microbial contaminants. This is only an example of one of many detailed areas which needs joint action and negotiations. (Genetically Modified Organisms) GMOs – EU interests indicate that TTIP will force the EU to allow the growing of genetically modified plants. EU negotiators confirm that growing and selling genetically modified organisms is a subject to an authorisation process in line with EU law, and TTIP will not change this law. EU countries must also specifically agree to importing or allowing in their markets any growing of GM plants. EC assumed for the negotiations that this will not be changed through TTIP. Animal welfare issues. EU interests state that ‚TTIP will force the EU to adopt lower animal welfare standards. EU negotiators indicate that TTIP will not affect EU animal welfare laws. The EU aims at setting up a formal dialogue on animal welfare with U.S. government regulators. They decided to promote and accomplish that in bilateral trade agreements so the highest standards of animal welfare will be kept.

Specific industry regulations

178 APPENDICES

2.5. Cosmetics

2.4. Chemicals

A review of major issues for negotiating TTIP

Assumptions. This area is negotiated to enable EU and US regulators to work more closely together using existing bodies; avoid as far as possible unnecessary costs caused by different regulations in the EU and US; respect the EU’s strict standards that protect people and the environment.

Sensitive or controversial issues. Standards. EU interests indicate that closer cooperation between regulators could mean EU regulators are slower to propose new legislative measures on chemicals. EU responds that any cooperation on chemicals between EU and US regulators would uphold the way that they implement respective laws. In the EU, these include two regulations on: the registration, evaluation, authorization and restriction of chemicals (REACH); and classification, labelling and packaging (CLP). In the US, they include the Toxic Substances Control Act (TSCA). EC set out new measures in line with processes and timelines laid down in appropriate laws and regulations; and strive to achieving all possible levels of health and environmental protection. There is also some sensitivity to new issues.

EU interests indicate that If EU and US cooperate more closely on new or emerging scientific issues, they could weaken or delay new EU laws. EC responded that they will fully preserve their rights to regulate and to act whenever needed.

Assumptions: TTIP should help EU and US regulators work together to keep consumers safe, while providing quality products and more choice for consumers.

Justification. EU and US regulators should work together on things like safety tests and product labelling; speed up the time taken to test and approve new products.

Justification. EU and U.S. regulators already cooperate with each other in this area, even though they have very much different systems for regulating cosmetics. TTIP could benefit consumers and industry by enabling regulators to work even more closely with each other especially on things like checking the safety of new and better products, so consumers can buy them sooner.

Objectives. The partners want to agree to work more closely on scientific safety assessments; agree to work on alternative methods of animal testing, and to push for the progressive phasing-out of animal tests worldwide; improve technical cooperation between regulators to facilitate U.S. approval of UV filters (which are already authorised in EU); work together on labelling using international practices; collaborate in new areas, such as: allergen labelling; market surveillance, to make sure products remain safe after companies start to sell them to consumers; create a basis for jointly developing regula¬tions on new areas not yet fully regulated.

Sensitive or controversial issues in chemicals are: Banned substances. Some EU sources indicate that ‚The Commission intends to use TTIP to change the EU’s list of prohibited substances in cosmetics. The EU negotiators indicate that they will not amend the EU’s list of 1 372 banned substances during the TTIP negotiations. They also stated that for new substances, the EU and the US could benefit from sharing scientific assessments that could lead to new bans or restrictions; Changes in EU law. Some EU interests indicated that TTIP will mean that cosmetics containing banned substances will be sold in the EU. The European Commission responded that cosmetics, just like any other product sold in the EU, will still have to comply with EU law. No trade agreement can change that fact; Permitted substances are also a sensitive issue. Many EU subjects inquire what is the objective as regards lists of allowed substances?

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2.6.

Engineering products

A review of major issues for negotiating TTIP

The EU negotiators respond that the EU list of permitted cosmetic ingredients, such as UV filters, is longer than that of the US. Under TTIP, EU negotiators attempt to convince and require the US partners to agree on using the EU scientific assessments for its own authorisation process; Precautionary principle. Some EU entities stated that TTIP will affect the precautionary principle. The EC responded that precautionary principle is enshrined in EU law and it is not its intention to change this. (The Precautionary Principle is a strategy to cope with possible risks where scientific understanding is yet incomplete, such as the risks of nano technology, genetically modified organisms and systemic insecticides).

Assumptions: In the area of engineering products high standards should be maintained while making it easier to export. The EU and U.S. regulators should work together to align technical requirements and testing methods; keep and expand high standards of both partners; and as a result and in connection to above activities make it easier to export and import engineering goods.

Justification. EU indicates that in 2013, trade in engineering goods (such as fridges, plugs, mobile phones, pleasure boats, tractors and pressure equipment) between the EU and the U.S. amounted to about 25% of their all trade value. There are almost 200 000 companies in the electrical and mechanical engineering sector in EU and even more in the U.S. Together, they employ almost 5 and 8 million people respectively. In some products however, there are big differences on either side of the Atlantic in a) technical regulations; b) standards and procedures for checking whether a product meets these regulations. This negatively impacts export or import opportunities and processes. TTIP should be considered whenever either side starts drafting new regulations. Ideally, the U.S and EU should make technical requirements and checking procedures fully compatible with each other. If regulators worked together, they could reduce these technical differences, whilst respecting the current high standards. For example, they could decide that the colours required for wiring in machines should be identical. The EU is looking to identify in the TTIP negotiating process products that would most benefit from regulators working together.

Objectives: TTIP should be platform for joint work on using standards widely used in EU and other countries around the world, such as standards set by the International Organization for Standardization (ISO) and International Electrotechnical Commission (IEC) as a way of meeting U.S. and EU regulations. Cutting the cost of checking if a product conforms to EU and U.S. standards and getting regulators to talk to each other at early stage of the process to avoid unneeded differences between their respective regulations.

Sensitive or controversial issues. Safety standards. EU interests indicate that TTIP negotiations will result in a race to the bottom for safety standards. The EC indicated that it will not compromise on safety standards. The idea is to align technical requirements where possible while maintaining high safety standards.

180 APPENDICES

A review of major issues for negotiating TTIP

Assumptions: Working together to enforce standards and protect consumers. This should improve the way both sides enforce regulations and protect consumers; and make it easier for EU firms to export to the US; and finally cut unnecessary costs.

Justification. Information and communication technologies (ICT) already benefit from global standards and technical specifications and fast growing world demand. The EU and U.S. should cooperate in many ways that would benefit consumers, businesses and government authorities.

Objectives. In ICT, it is critically important to set up ways of working together to better enforce regulations in the EU and the U.S.; 2.7. Information increase cooperation between regulators on things like e-labelling, establishing standards for providing product information to conand sumers in electronic format, where this replaces labels and stickers; e-accessibility which is making ICT easy to use for people with communication disabilities; interoperability which is enabling users to exchange data easily between different products; set common principles for technologies certifying ICT products, especially for encoding and decoding information (cryptography). This would help the negotiating partners (ICT) avoid unnecessary differences in rules and insure high levels of consumer protection.

Sensitive or controversial issues. EU interests indicate regarding standards that TTIP negotiations will result in reducing safety standards The EC indicates in response that EU will not compromise on safety standards, and align technical requirements where possible while maintaining high levels of safety. They also indicate that they want to foster the use of global standards. In the area of security it is said by the EU interests that TTIP will result in lower security levels for commercial ICT products. The EC indicated that they will not accept lower levels of security. The idea for TTIP is to establish common principles for assessing how products comply with regulations.

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2.8. Medical devices

A review of major issues for negotiating TTIP

Assumptions: The major assumption for medical devices is to work together to approve, monitor and recall devices. The EU negotiators wish to make medical devices more accessible and traceable while maintaining high safety standards.

Justification: Medical devices include things like pacemakers; scanners; x-ray machines which are a vital part of modern health systems.

Both the EU and the United States have strict rules for such devices. Sometimes these rules overlap or test the same things twice. This results in extra costs for public health systems; delays in making new devices available for patients. TTIP should improve cooperation between EU and US regulators in this area, which is expected to benefit both the public and industry. The EU and the United States have already removed customs duties on most medical devices, so TTIP’s benefits will chiefly come from better regulations and eliminating non-tariff barriers (NTBs) and streamlining approval procedures. This may involve having similar electronic forms in the EU and the U.S. for sending in data from trials; better procedures for monitoring products or recalling them when necessary.

Objectives: The objective is for EU and U.S. regulators to work more closely together on medical devices; and in that base their work on the international medical devices regulatory forum (IMDRF). The sides want to agree to base our national systems for identifying and tracing medical devices on the international unique device identification (UDI) system; make sure that EU and U.S. UDI databases are compatible with each other; harmonise forms for getting new medical devices approved, so EU and US regulators can work on approvals at the same time which will make new devices available more quickly; work towards recognising each other’s quality management systems (QMS) audits; create a basis for jointly developing state-of-the-art regulations on new areas not yet fully regulated.

Sensitive or controversial issues. EU interest state regarding approval process - TTIP will harmonise the way a medical device is approved in the EU and in the United States. EC responds that in TTIP they do not want to harmonise the approaches for the approval of medical devices in EU and U.S. It is true that both systems are different, but they provide a high level of consumer protection. The EC strives to streamline the approval processes, for example by having a common application form when applying for approval of new medical devices. Consequently, manufacturers could apply simultaneously for approval in both EU and U.S. and make new devices available to patients quicker and cheaper. There are also concerns regarding regulation. EU subjects assume that TTIP will affect the revision of the EU’s medical devices regulations. The Ec responds that revisions of the EU’s medical devices regulations are being discussed by the governments of the EU Member States and the European Parliament. TTIP will not interfere with this internal process.

182 APPENDICES

2.9. Pesticides

A review of major issues for negotiating TTIP

Assumptions. The assumption for this chapter is to work together to make trade easier and help farmers grow more niche crops. These issues are already addressed by regulators of EU and U.S. TTIP will complement this work and make EU–US trade easier and help farmers Justification: Regulators from the EU and U.S. and other countries are already discussing pesticides in international organizations such as: Organisation for Economic Cooperation and Development (OECD) and United Nations (UN). The OECD has a pesticides working group where member countries work together to: share their findings; harmonise strategies and guidelines for testing pesticides. At UN, CODEX Alimentarius deals with international food standards. It sets global limits for pesticides, called maximum residue levels (MRL). Both EU and U.S. play an active part in these negotiations. Because the TTIP negotiating partners want to avoid duplicating activities of these organizations they do not plan to include a specific chapter on pesticides in TTIP. Instead, EU and U.S. regulators will complement activities of these organizations by continuing to discuss specific issues between themselves to benefit consumers and companies.

Objectives. EU established two major groups of objectives in this area. The first is to make trade easier: EU wants to look at how we can make it easier to export food and drink products, like olive oil, to the United States. This will involve for example a system of pre-export checks. We could agree with the United States that whenever an EU company wanted to export a food or drink product to the United States, EU regulators would check pesticide levels in the product before it is shipped.. Then: EU regulators would tell their counterparts in the U.S. if products met US standards for pesticide levels; if yes products could be exported in confidence without risking that US customs could block their product. This system could save exporters significant costs. The second area is promoting niche crops which are for example parsley, leeks, celery or lettuce, for which market is limited (not as in the case of other agricultural products such as wheat or maize (corn)). EU intends to promote these products trade and help farmers expend their niche crops production. To accomplish that farmers must be able to use certain pesticides at levels that studies have proved are safe. Unfortunately, in some cases, no research has been completed yet on impact of pesticides. This can be addressed during the TTIP negotiations. Regulators could agree to share information they’ve gathered from studies. Doing so would also mean they could make better use of their limited resources, helping to protect consumers more effectively; speed up approvals for using pesticides within strict limits and without compromising on safety.

Sensitive or controversial issues. In the area of health and the environment some EU entities indicate that TTIP could weaken the EU’s regulations on pesticides and lower our strict health and environmental standards. The EC negotiators indicate that TTIP will fully respect the EU’s existing regulatory standards on pesticides in that keep the EU plant protections products Regulation (EC) No 1107/2009; uphold the levels of protection for people’s health and the environment that the regulation sets. Another sensitive area refers to residues in food. EU entities indicate that TTIP could mean that EU regulators allow higher pesticide residues in food sold in Europe. EC negotiators indicate that TTIP won’t lower MRLs (defining the highest quantity of pesticides that can remain in any food sold in the EU). U.S. products not meeting these standards will not be allowed in EU. Next sensitive item are hormone-disrupting chemicals. EU interests indicate that TTIP could stop the EU from regulating hormone- disrupting substances. For products sold in the EU, this could allow residues of some pesticides that might otherwise be banned. The EU negotiators indicated in response that TTIP will not open the EU market to hormone-fed beef, this trade will be regulated by the existing legislation.

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2.11. Textiles

2.10.

Pharmaceuticals

A review of major issues for negotiating TTIP

Assumptions. TTIP negotiations will enable regulators to work together more closely to ensure medicines are safe and effective. The medicines must meet strict standards of efficacy, quality and safety; and support each other’s work on developing regulations in new areas Justification. EU and U.S already work on pharmaceuticals. For example, customs tariffs on exports have been removed. There three areas for addressing: inspections, approvals and innovation. In inspections the regulators check the way companies make medicines regularly to ensure they meet strict EU and U.S. standards. This is challenging because in global economy companies often produce a medicine in stages and in many countries with different ingredients coming from suppliers all over the World. The second area are approvals. This addresses limiting the time and resources pharmaceutical companies need to devote to get new medicines to the market. Before new medicines are available companies first must carry out studies, including clinical trials, and only after regulators will consider if this product can enter markets. These studies have to show that the benefits of using the medicine outweigh the risks.

The idea is to eliminate doing the same studies and tests twice in EU and U.S. before products can be approved. Innovation is a final area. This is about helping regulators work together in areas where science is evolving fast. Developing new medicines means working at the cutting edge of science. This can make it more of a challenge for regulators to check if those products are safe. Mechanisms that make the regulators tasks easier by enabling sharing expertise and findings and exchange views based on the latest science available will be negotiated.

Objectives. In the area of inspections the partners would recognise each other’s inspections of manufacturing plants based on principles and guidelines known as good manufacturing practice (GMP) to ensure that companies produce their medicines consistently and to the required quality standards. These rules address manufacturing procedures and equipment checks; laboratory analyses and record-keeping; staff qualifications; systems for assuring products’ quality. This would benefit each other’s inspections and better assign resources needed to carry them out by avoid duplicity of efforts. For approvals and innovation, for all medicines, EU and US regulators will exchange information that makes it easier to decide whether to approve medicines; work closely within international conferences on harmonisation of technical requirements for registration of pharmaceuticals for human use; work closely on new international rules such as generic medicines. For so-called biosimilars regulators would work on EU and US requirements for medicines similar to biological medicines that regulators have already authorised. (Biological medicines are used to treat a wide range of conditions, such as cancer or auto-immune disorders).

Sensitive or controversial issues. The first controversial area are pricing mechanisms for medicines and systems for reimbursing bills.

EU interests indicate that With TTIP, EU governments would lose their right to decide about prices people pay for medicines; or how people are reimbursed. The EU negotiators stated that TTIP would not affect EU governments’ right to decide how much people have to pay or how they’re reimbursed The only thing EU law requires of governments is that they make their decisions transparently.

Assumptions. The negotiating partners intend to work more closely together on standards for clothing. In this chapter we want to improve cooperation between regulators in the EU and the United States.

Justification. Textiles exporters are most concerned about rules of origin and customs duties.

Objectives: Major areas for accomplishing are for EU labelling textiles and clothes, including: mutual recognition of care instruction symbols; agreeing on names for new fibres; insure product safety and consumer protection; and agree on standards and testing methods.

184 APPENDICES

General

TTIP: Part 3: Rules

2.12. Vehicles

A review of major issues for negotiating TTIP

The overall assumption for this part of TTIP is to create new rules to make it easier and fairer to export, import and invest. This part contains eight complex chapters which, as indicated by the negotiations so far, are difficult to address and agree upon due to a number of factors described in the following paragraphs.

The eight chapters are: Chapter 3.1 Sustainable development; Chapter 3.2 Energy and raw materials; Chapter 3.3 Customs and trade facilitation, Chapter 3.4 Small and medium-sized enterprises; Chapter 3.5 Investment protection and investorâ&#x20AC;&#x201C;state dispute settlement (ISDS); Chapter 3.6 Stateâ&#x20AC;&#x201C;state dispute settlement; Chapter 3.7 Competition policy; Chapter 3.8 Intellectual property rights and geographical indications.

Assumptions: The partners intend to create a transatlantic market for cars and trucks. This will be accomplished by identifying current equivalent EU and US standards, harmonizing certain regulations; developing global regulations; and joint planning of new regulations.

Justification: The U.S. accounts for 18% of all EU vehicle exports, more than one in eight cars imported to the EU comes from the United States. Sophisticated regulations in the EU and U.S. generally achieve similar levels of safety. A vehicle proved safe in the EU should therefore be considered safe in the United States, just as a US vehicle should be in the EU. Unfortunately, current regulations developed in parallel, create differences that make it costly to comply. For example, American and European cars have different safety standards for nearly every part, from the seats and seatbelts to doors. This means that a car maker has to go through a long approval process to import a car from the U.S. The negotiations would allow more American cars to be recognized as safe for driving in Europe and more European cars to be recognized as safe for driving in the United States based on mutual recognition of standards). This would increase consumer choices and consumers and manufacturers would benefit from regulators agreeing on cases in which our rules provide the same protection. Objectives: Major objectives are to agree where EU and US technical standards match by developing a specific comparison method. They want to recognise as many as possible of their respective requirements as equivalent to each other. The second objective is to develop global regulations under the UN and encourage other countries to adopt them. This is an option for cases where it cannot be agreed that EU and U.S. standards are equivalent. A list of technical standards for vehicles that the United Nations Economic Commission for Europe (UNECE) agreed upon in 1998 should be expanded. The third area is to agree to harmonise certain EU and US regulations, especially for new technologies. EC assumes that in the areas which have not yet been jointly regulated TTIP may result in harmonised EUâ&#x20AC;&#x201C;US standards as a good example for global rules under UNECE. This for example may concern electric vehicles. The fourth area involves coordination plans for new regulations and research into new technologies.

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A review of major issues for negotiating TTIP

Assumptions: In this chapter EU wants to safeguard basic rules that protect people’s rights at work and the environment; keep civil society involved in implementation of TTIP, and encourage businesses to be good corporate citizens. In sum it means protecting people at work and protect the environment.

Justification. EC would like to negotiate ambitious provisions that ensure that economic growth and development, and environmental protection are jointly considered. They assume that expanded trade doesn’t have to come at the expense of workers or the environment.

TTIP should support social progress. EU believes that measures in this area could benefit people by reinforcing labour and environmental governance; fostering civil society involvement on trade and sustainable development issues; promoting corporate social responsibility in EU and US companies.

Objectives: Major objectives are support core international standards and conventions for labour and environment; keep individual 3.1. Sustainable rights to set high levels of environmental and labour protection (avoid reducing standards), tap trade’s potential to advance sustainable development development objectives (for example through more trade in sustainably managed natural resources or in green goods and services).

Sensitive or controversial issues. There are several issues which are controversial in this area. The first are labour standards. EU interests indicate that TTIP will lower workers’ rights and undermine the role of the International Labour Organisation (ILO). EC negotiators indicate that they want high levels of protection for workers in TTIP, based on ILO instruments. The second area is climate change.

EU interests are afraid that TTIP will jeopardise the EU’s ambitious climate policy. EC response is that EU climate legislation is not part of TTIP negotiations. On the contrary, TTIP will support EU climate targets, for example by promoting trade and investment in green goods and services. Conflict resolution is another sensitive area in TTIP negotiations. EU interests indicate that TTIP will not include an effective way to resolve conflicts. EC responds that they want a transparent, independent mechanism to resolve conflicts within a set timetable which will allow interested parties from civil society to make their views heard.

186 APPENDICES

A review of major issues for negotiating TTIP

Assumptions: This chapter should contribute to securing more stable and sustainable access to natural resources (energy and raw materials). This may be achieved through open; rules-based; competition-friendly; sustainable; eliminate existing limits; promote the development of green energy.

Justification: EC negotiators indicate that securing more open, diversified, stable and sustainable access to energy and raw materials is one of Europeâ&#x20AC;&#x2122;s main challenges. They want to develop new rules on trade and investment in this sector because Europe increasingly depend on natural resources outside the Union; they need to promote fair, competition-friendly and sustainable access to energy them; plus they believe that international trade and investment rules have not caught up with todayâ&#x20AC;&#x2122;s interdependence. So they reason that EU and U.S. should lead efforts to promote sustainability in use of traditional fuels; develop the new green energies of the future. This can be accomplished during TTIP negotiations.

Objectives: Main EC goals in energy and raw materials are: a) to create a strong set of sustainable trade and investment rules to facilitate access to energy and raw materials; b) to diversify access to raw materials and energy suppliers. TTIP create a model for future negotiations with other countries; make trade and investment more transparent and non-discriminatory; promote competition and trans3.2. Energy and parent rules, including issues related to resource exploitation and access to infrastructure such as pipelines. TTIP also should promote raw materials sustainability and contribute to the development of new rules in raw materials and energy areas.

Sensitive or controversial issues. There are several sensitive issues in this area. The first is fracking. EU interests are afraid that TTIP will allow US firms to produce shale gas in the EU if trade and investment rules in the area of energy are approved. EU negotiators indicate that EU governments are responsible for deciding whether to allow shale gas production in their country. Nothing in TTIP could limit this sovereign right. Another issue concerns fossil fuels. EU interests stated that There is nothing in TTIP on renewable energy and in response EU indicates that TTIP cover the entire energy sector. TTIP should include rules that will promote renewable energy and energy efficiency. These are areas that are crucial in terms of sustainability. Next sensitive issue are carbon emissions. EU subjects stated that Importing American natural gas, such as methane, is energy intensive. Carbon dioxide (CO2) levels will increase. EC responds that the shale revolution in the United States has so far only led to increased coal imports into the EU. Replacing the import of coal by natural gas will have a positive effect: it will reduce our CO2 levels rather than increase them. Another EU raised issue is sovereignty. They indicated that TTIP could reduce the rights of countries to decide whether or not to allow exploitation of their natural resource. EC explains that decisions on whether or not to allow exploitation of a natural resource will not be affected by TTIP. However, if decisions are taken to allow exploitation in a given country, TTIP aims to foster better competition and open access.

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3.3. Customs and trade facilitation

A review of major issues for negotiating TTIP

Assumptions. This chapter of TTIP and relevant negotiations should contribute to streamlining customs rules and controls to make exporting easier. It should be easier for companies trading goods between the EU and the United States to get their goods through customs; continue to ensure that firms can only export goods that meet our rules; in that way, protect people and the environment.

Justification. When a firm in the EU exports its products to the U.S., customs officers at the US border check products to make sure they meet US rules and regulations. The same applies to exports from the U.S. to EU. These customs checks stop harmful or illegal goods from finding their way into our shops; ensure that companies pay any customs duties and taxes that are due for their kind of product; governments get the money they count on to pay for their budgets. TTIP should help boost EUâ&#x20AC;&#x201C;US trade by agreeing on new rules for customs procedures. These rules would streamline the procedures to make them more efficient, and save time, money and hassle for all companies. Two examples of where TTIP could make life easier for EU exporters are: a) processing fees that U.S. customs apply; b) maintenance fees that certain US ports charge. When an EU company sends a shipment to the U.S. it has to pay appropriate customs plus it has to pay other customs fees on top for processing exported goods. The fee depends on the value of the goods, but can come to as much as 500 dollars. TTIP would exempt goods of EU origin from this charge. If an EU company is exporting goods to the United States through certain ports, it also has to pay harbour maintenance fees for port usage. The rate is about 0.15% of the value of the goods being imported. This can still come to a lot for high-value goods, such as medicines, which many EU companies export to U.S. According to EU, TTIP should cut or eliminate these fees.

Objectives. EU wants in this chapter of of TTIP to set up new customs rules that make it easier for firms to export and import; allow customs officers to carry out the checks they need to ensure that goods coming into the country are safe; companies pay necessary duties or taxes. This can be accomplished by agreeing on simple effective rules that are easy to understand and follow; using one set of forms for companies to fill in EU or US,; ensuring that customs procedures are transparent (for example by making them available online); getting customs in the EU and U.S. closely together. The World Trade Organisation (WTO) is the body that sets the rules for global trade.

Its members (including EU, U.S., and most other countries in the world) have already agreed on an international Agreement on Trade Facilitation (TFA). The agreement sets out procedures that a countryâ&#x20AC;&#x2122;s customs authorities should apply when foreign companies or individuals want to export goods to that country; helps make it easier for companies or individuals to get their goods through customs.

TTIP should help the implementation of TFA into practice, and expand its provisions if possible.

188 APPENDICES

3.4. Small and medium-sized enterprises

A review of major issues for negotiating TTIP

Assumptions: Smaller and medium size firms should fully benefit of TTIP. This chapter makes sure that smaller and medium size firms can sell to or import from the U.S. easily taking full advantage of TTIP. Justification. EU indicate that Europe has 20 million smaller firms (less than 250 employees). These firms employ more than two thirds of people working in the private sector; create far more new jobs than other parts of the economy (about 85% in the period 2002 â&#x20AC;&#x201C; 2010).

Small firms face the same trade barriers as large companies but they have fewer resources to deal with them. So small businesses in particular will benefit from any progress resulting from TTIP such as: removed customs duties; simplified customs procedures; reduced cost of diverging standards; or improved protection of intellectual property rights. Small companies need extra help to make the most of the new trade and investment opportunities that TTIP may create. Smaller firms should have access to information, should receive help with exporting or investing abroad; and should have voice in implementing TTIP agreement.

Objectives. In this part of the agreement, EU wants to set up a free online helpdesk where smaller firms can find information they need to trade and invest in the U.S. including: customs duties and taxes due on particular products; regulations and customs procedures that firms would have to follow; market opportunities. EU already has a similar online helpdesk for firms wanting to export to Europe.

EC also wants to exchange best practices on helping smaller firms export or invest abroad; assist them in working together on business networking and access to finance, expand and strengthen their cooperation in these and other areas; give smaller firms a voice in implementing TTIP agreement. EC wants to set up a committee to liaise with the small business community and convey its priorities and concerns to the EU and U.S. trade authorities. EC has asked smaller European firms what problems they face when doing business in U.S. Based on this survey, they proposed several measures for TTIP.

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3.5. Investment protection and investorstate dispute settlement (ISDS)

A review of major issues for negotiating TTIP

Assumptions: EU defines as one of the most important assumptions of TTIP that it should attract U.S. investors while protecting EU governments’ rights to regulate. This chapter should provide new investment opportunities; create level playing field for EU investments in the U.S.; and reform the current investment protection system.

Justification. The EU is the biggest investor in the United States. EU companies have invested annually over €1.6 trillion in the United States. European companies also rely on investment to grow, international skilled labor resources and reliable infrastructure. A closer EU – U.S. partnership encourages investment. TTIP would both partners to compete by providing more opportunities for companies and investors. Increasing competitiveness often requires additional investment. Currently, EU members states have more than 1400 agreements (Bilateral Investment Treaties (BIT)) to encourage investors. The U.S. and individual states have even more BITs. These agreements provide certain rights to investors. One of the most important is the investor–state dispute settlement (ISDS). The essence of this instrument is that investors can submit cases to panels of international arbitrators to resolve situations when government agencies have treated them unfairly. If such tribunals confirm unfair treatment they may decide about compensation to be paid by states. This investment protection mechamism in TTIP would prohibit: a) discrimination against foreign investors; b) expropriation of foreign investments without compensation; c) denial of justice to foreign investors in domestic courts; d) abusive or arbitrary treatment of EU and U.S. investors in bilateral trade. Existing investment protection provisions have generally worked well. A general opinion is that this system (ISDS) although needed needs improving and updating.

A new approach to investment protection should be presented in TTIP. This may include reviewing the way ISDS tribunals procedure and address cases, systems of appointing arbitrators. This should lead to creating a system that strengthens appeal procedures, and allows EU, federal and state governments to regulate in the public interest. In 2014, EU asked people to comment on ISDS proposals online. EC is now consulting further with EU stakeholders and governments; and European Parliament. This will help drafting proposals to reform the entire ISDS system.

Objectives. General objectives are to encourage investors, protect investors abroad by ensuring permanent, establish stable rules for EU–US trade; strengthen governments’ right to regulate. All this should protect people and environment and benefit societies. It is expected that the system must protect governments’ right to regulate; and make the system more transparent.

Sensitive or controversial issues. In this area, there are many sensitive or controversial issues. Many organizations and entities in EU oppose the proposed ISDS. There is vast literature on these issues. Below several major issues are presented. The first sensitive area is governments’ right to regulate. EU interests indicated that Investment protection and ISDS in TTIP will jeopardise the legitimate right of governments to regulate in the public interest. EC indicated that the EU has put forward in the public consultation several proposals for safeguarding the right to regulate. They include an explicit acknowledgement of the right to regulate, and clarification and definition of investors rights (including their limitations). The second area are issues related to addressing ISDS cases. Some EU entities indicate that ISDS proceedings are conducted in secret and tainted by bias and conflicts of interests. EC responded that EU has put forward in the public consultation proposals that would ensure full transparency, impartiality and ethical conduct of arbitrators.

The final sensitive area is related to ISDS decisions. EU interest claim that ISDS tribunals generate inconsistent and sometimes biased practice and their decisions should be subject to review. EC indicated that it has flagged the need to review ISDS tribunals’ decisions through an appellate mechanism. It is expected that ISDS will constitute one of the most difficult element of TTIP negotiations.

190 APPENDICES

3.7.

Competition policy

3.6. State to state dispute settlement

A review of major issues for negotiating TTIP

Assumptions: TTIP should establish a fair, effective way to resolve disputes between EU and US governments related to this agreement.

This system should be based on the existing WTO system. It is also important that this system will be fully transparent.

Justification. WTO resolves disputes between its 160 member countries in a very successful and effective manner. Their rules apply not only to WTO agreements. It may be advantageous to use the same method for TTIP to clarify and enforce mutual rights, obligations and rules. This would help interpreting and implementing TTIP and based on clear procedures solve disagreements before they develop into full-blown disputes; and help avoid negative spillover effects on EU–U.S. relations.

Objectives. TTIP would be based on the WTO’s successful dispute settlement system and would feature important innovations, such as enabling both partners to decide in advance which arbitrators are acceptable rather than choosing them on a case-by-case basis. EU believes that this would increase mutual trust in these arbitrators and their rulings. Important objective is to ensure even greater transparency by holding hearings in public and permitting interested parties, such as non-governmental organisations, to present written statements panels of arbitrators.

Assumptions: TTIP should include a model for global policies to promote free and fair competition allowing EU and US firms to compete on equal terms.

This chapter should address rules to stop firms colluding to fix prices or abusing market power. The TTIP mechanisms should ensure that private companies can compete with state-owned entities on equal terms. It is also important to insure that state subsidizing is done transparently.

Justifications. Fair and free competition ensures a level playing field for EU and US firms. Certain global issues however, can distort competition. This may involve activities of state-owned enterprises (SOEs). These area companies that governments own or effectively control. These companies sometimes enjoy advantages denied to their competitors in the private sector. A major problem are subsidies.

EC claims that EU already has a transparent system for overseeing and controlling government subsidies. These issues must be jointly regulated. TTIP negotiations provide an opportunity for EU and the U.S. to underline the values they share in adopting and enforcing competition laws; affirm their existing high standards. A strong competition chapter in TTIP could serve as an example for other countries and confirm EU and U.S. leadership.

Objectives. EU objectives are to build on the effective EU–U.S. cooperation agreement to enforce competition laws; further develop rules on competition and cooperation including trade and investment with other countries; ensure that SOEs with monopoly powers or special rights do not discriminate against private companies; agree rules on transparency for subsidies to companies supplying industrial goods and services.

Sensitive or controversial issues. The first area are public services. Some EC entities indicate that TTIP could undermine public services in the EU. EC explains that the basis for the EU’s position on competition in TTIP is the EU’s existing legal framework. EC proposal fully safeguards the treatment of public services under the relevant EU rules, including rules on competition, subsidies and SOEs. So there’s no risk that TTIP would undermine public services in the EU

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3.8. Intellectual property rights (IPR) and geographical indications (GI).

A review of major issues for negotiating TTIP

Assumptions. TTIP should help bringing more innovative products and services more quickly to EU and U.S. consumers. This agreement should ensure that firms can profit from research and help shoppers choose food from a particular region. This chapter will provide joint principles to work more closely together and encourage investment in innovation and research; help generate growth and jobs and benefit businesses and consumers Justification: Innovation and creativity drive economic growth in EU and U.S. They also give consumers more choice and create jobs.

Intellectual property rights (IPR) reward individuals and firms that innovate or put their creativity to work. IPR includes such issues as patents, trademarks and designs; copyrights, and geographical indications (GIs). They allow firms or individuals which invent, improve, brand or create new products or services to stop unauthorised use; make money from their effort and investment. In EU, IPR-intensive firms account for nearly 40% of economy, and are worth about €4.7 trillion each year; and account for 35% of work force.

EU has developed modern, integrated rules to protect IPR which help generate growth and jobs. They also ensure the right balance between interests of those who hold the rights to intellectual property; and those who use that property. The U.S. also has sophisticated rules for IPR. Its policies are based on similar principles, so the rules for protecting IPR across the Atlantic are predictable. EU and U.S. already export and import lots of goods and services that depend heavily on intellectual property. TTIP should raise awareness of the role of IPR in encouraging innovation and creativity; protect the people and firms that come up with new ideas and use them to make high-quality products by enforcing IPR rules in a balanced way; encourage investment in research and development that produces new ideas, as well as branding of products and services. Protecting geographical indications by regulating GIs is a very important and relatively new issue in transatlantic relations. Many food and drink products from the EU are produced, processed or prepared in specific regions. They have so called names of origin linked to areas of production for example Tiroler Speck is a kind of ham from Austria; Grappa is a spirit from Italy; Beaufort is cheese from France. At the moment, the EU and U.S. protect names of origin differently. EU law protects them as GIs; US law allows producers to protect these names as trademarks, but in this system many EU names aren’t protected. The current US system, and the way it’s enforced, means products are often sold in the United States which use names of origin from a particular region in the EU; but weren’t actually produced there. This misleads consumers and means that EU producers lose out. So this is a n important issue for negotiations. The issues include: protecting an agreed list of EU GIs, with rules to stop other producers misusing them; and enforcing these rules effectively.

192 APPENDICES

A review of major issues for negotiating TTIP

Objectives: This chapter should address shared principles that are based on existing rules and practice in the EU and U.S.; stress the importance of IPR in generating innovation, growth and jobs; binding commitments on certain important issues like: GIs; aspects of copyrights such as resale rights for visual artists; public performance and broadcasting rights. The TTIP negotiations should lead to getting governments and stakeholders work together on areas where they share interests.

Sensitive or controversial issues. The first issue is related to ACTA. EU interests indicate that TTIP may try to introduce certain rules through the back door, which the EU first tried to adopt in a planned Anti-Counterfeiting Trade Agreement, or ACTA, which the European Parliament rejected. EC explains that the EU and U.S. have detailed enforcement provisions already, whereas some other countries that planned to join the ACTA didnâ&#x20AC;&#x2122;t. So EU is not interested in negotiating rules on: penal enforcement or internet service provider liability. Another issue are possible higher prices. EU interests indicate that IPR-related rules in TTIP may increase prices for new pharmaceutical products. EC negotiators indicate that the current balance between innovation and keeping medicines affordable is essential for European public health services, and this will not be changed during IPR negotiations in TTIP. Final concerns are related to geographical indications (GI). EU entities indicate that Europeâ&#x20AC;&#x2122;s current GI system protects our farmers and food producers by preventing imports of products that infringe our intellectual property. TTIP could weaken this system. EC replies that they are not inclined to cut the protection EU currently offers our GIs in Europe. Imports that use protected names should not be able to enter the EU market.

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194

APPENDICES

Appendix to Chapter 3

Table A.2.1: RCA, European Union, commodity groups, 2007-2013 Industry/ Year 1 2 3 4 5 6 7 8 9 11 12 21 22 23 24 25 26 27 28 29 32 33 34 35 41 42 43 51 52 53 54 55 56 57 58 59 61 62

2007 0.48 0.97 0.35 0.63 0.52 0.71 0.38 0.56 1.44 2.45 0.93 1.16 0.15 0.55 0.70 0.62 0.66 0.98 0.57 1.08 0.08 0.60 0.06 1.19 0.92 0.76 0.56 1.15 1.12 1.40 1.96 1.75 0.60 0.73 0.95 1.26 1.24 0.77

2008 0.53 1.05 0.37 0.79 0.55 0.51 0.25 0.53 1.39 2.25 0.95 1.58 0.11 0.54 0.82 0.69 0.68 0.84 0.53 1.13 0.08 0.51 0.08 0.83 1.10 0.66 0.38 1.22 0.89 1.51 2.03 1.71 0.40 0.82 1.04 1.27 1.36 0.85

2009 0.47 0.99 0.31 0.71 0.48 0.49 0.26 0.52 1.36 2.16 0.93 1.85 0.08 0.72 0.85 0.72 0.70 0.89 0.54 1.04 0.08 0.52 0.16 0.68 1.09 0.55 0.37 1.30 1.30 1.45 1.91 1.66 0.45 0.90 0.93 1.32 1.24 0.76

2010 0.60 1.18 0.33 0.83 0.54 0.50 0.28 0.59 1.41 2.46 1.01 2.16 0.13 0.47 1.17 0.70 0.62 1.37 0.65 1.31 0.09 0.49 0.16 0.86 1.01 0.43 0.28 1.30 1.12 1.57 2.14 1.84 0.41 0.91 1.00 1.37 1.24 0.84

2011 0.65 1.12 0.32 0.71 0.52 0.42 0.22 0.57 1.39 2.50 1.03 2.11 0.11 0.39 0.85 0.78 0.49 0.90 0.49 0.99 0.07 0.48 0.03 0.77 1.00 0.38 0.30 1.14 1.07 1.45 2.17 1.75 0.46 0.83 0.95 1.30 1.22 0.79

2012 0.63 1.14 0.33 0.65 0.55 0.48 0.26 0.55 1.40 2.53 1.07 2.15 0.07 0.45 0.87 0.79 0.58 0.85 0.53 0.91 0.08 0.53 0.05 0.64 1.14 0.44 0.27 1.13 1.10 1.47 2.22 1.71 0.48 0.84 0.93 1.32 1.17 0.83

2013 0.62 1.11 0.33 0.83 0.54 0.42 0.23 0.55 1.47 2.50 1.04 2.16 0.10 0.46 0.90 0.75 0.63 0.85 0.42 0.97 0.07 0.51 0.02 0.75 1.17 0.52 0.30 1.08 0.89 1.50 2.18 1.77 0.46 0.81 0.95 1.33 1.16 0.87

TTIP - The 21st Century Agreement Industry/ Year 63 64 65 66 67 68 69 71 72 73 74 75 76 77 78 79 81 82 83 84 85 87 88 89 93 97 0

2007 0.95 1.12 0.76 1.51 0.84 0.61 1.03 1.63 1.84 1.66 1.58 0.44 0.38 0.69 0.99 1.70 1.15 0.94 1.18 0.54 0.72 1.26 4.32 1.78 0.00 0.17 0.02

Source: SITC Revision 4

195

2008 1.12 0.78 1.38 0.89 0.72 1.13 1.74 2.03 1.92 1.77 0.48 0.65 0.90 1.13 1.56 1.30 1.04 1.29 0.59 0.73 1.36 4.39 1.30 1.92 0.11 0.01 0.01

2009 1.02 1.18 0.65 1.22 0.98 0.67 1.07 1.87 1.97 2.18 1.77 0.50 0.55 0.75 1.05 1.97 1.13 0.90 1.16 0.49 0.61 1.24 4.38 1.94 0.00 0.11 0.02

2010 1.05 1.27 0.65 1.32 0.92 0.66 1.15 1.97 2.07 2.11 2.09 0.56 0.61 0.83 1.29 2.01 1.22 0.91 1.20 0.50 0.62 1.26 4.45 1.12 0.00 0.11 0.02

2011 1.02 1.21 0.61 1.24 0.86 0.70 1.06 1.88 2.04 1.97 1.75 0.47 0.63 0.72 1.34 2.02 1.16 0.91 1.24 0.50 0.62 1.27 4.23 1.80 0.00 0.09 0.02

2012 1.03 1.18 0.60 1.24 0.87 0.69 1.04 1.93 1.95 1.87 1.74 0.45 0.54 0.69 1.37 2.13 1.03 0.85 1.25 0.54 0.63 1.26 4.19 1.80 0.00 0.07 0.02

2013 1.06 1.17 0.57 1.17 0.86 0.72 1.11 1.99 2.04 2.03 1.80 0.45 0.48 0.69 1.42 2.35 1.00 0.91 1.26 0.54 0.66 1.31 4.38 1.09 0.00 0.06 0.02

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APPENDICES

Table A.2.2: (RCA) United States, commodity groups, 2007-2013 Industry/ Year

2007

2008

2009

2010

2011

2012

2013

1

1.31

1.45

1.49

1.57

1.70

1.59

1.56

2 3 4 5 6 7 8 9 11 12 21 22 23 24 25 26 27 28 29 32 33 34 35 41 42 43 51 52 53 54 55 56 57 58 59 61 62 63 64 65 66 67

0.49 0.73 2.85 1.22 0.00 0.55 1.93 1.34 0.53 1.15 2.96 4.91 1.68 0.99 2.44 3.08 1.28 1.63 0.96 0.92 0.40 0.26 0.42 3.02 0.81 1.34 1.40 1.76 1.20 1.12 1.30 2.96 1.55 1.18 1.87 0.66 0.93 0.49 1.04 0.69 1.20 0.43

0.61 0.67 2.96 1.27 0.00 0.47 2.03 1.39 0.53 0.87 3.04 4.33 1.49 1.14 2.59 3.29 1.03 1.72 1.05 1.10 0.50 0.32 0.47 2.77 0.93 1.32 1.46 1.79 1.32 1.20 1.35 0.81 1.75 1.28 2.00 0.60 0.99 0.58 0.70 1.30 0.51 0.71

0.45 0.64 2.33 1.34 0.00 0.53 2.02 1.43 0.60 0.69 2.96 4.93 1.42 1.19 2.98 2.81 1.07 1.55 0.99 1.13 0.55 0.34 0.25 2.47 0.73 1.02 1.36 2.04 1.36 1.34 1.42 1.67 1.75 1.32 1.95 0.46 1.02 0.56 1.22 0.62 1.18 0.57

0.63 0.61 2.49 1.37 0.54 0.43 2.17 1.45 0.63 0.66 2.97 7.67 1.09 1.68 2.68 2.92 1.80 1.69 1.16 1.20 0.58 0.47 0.25 3.13 0.60 0.96 1.54 1.85 1.53 1.29 1.44 1.73 1.75 1.34 1.92 0.50 0.98 0.57 1.25 0.63 1.28 0.57

0.69 0.66 2.61 1.40 0.58 0.31 1.98 1.43 0.66 0.60 2.88 3.80 0.84 1.38 2.80 3.07 1.10 1.23 0.91 1.48 0.69 0.38 0.13 2.85 0.43 0.88 1.54 1.80 1.56 1.20 1.38 1.09 1.68 1.31 1.88 0.58 0.95 0.53 1.24 0.64 1.34 0.54

0.66 0.58 1.74 1.39 0.62 0.33 1.84 1.39 0.63 0.52 2.54 4.21 0.83 1.28 2.58 2.36 0.97 1.04 0.78 1.36 0.67 0.35 0.07 1.80 0.40 0.81 1.35 1.59 1.33 1.12 1.31 0.93 1.54 1.22 1.83 0.53 0.95 0.48 1.16 0.58 1.22 0.54

0.79 0.57 1.70 1.39 0.61 0.33 1.99 1.40 0.65 0.58 2.38 3.57 0.87 1.35 2.47 2.29 0.97 0.98 0.81 1.18 0.72 0.37 0.13 1.67 0.34 0.71 1.36 1.50 1.31 1.07 1.31 1.06 1.49 1.22 1.86 0.59 0.94 0.47 1.15 0.57 1.23 0.56

TTIP - The 21st Century Agreement Industry/ Year 68 69 71 72 73 74 75 76 77 78 79 81 82 83 84 85 87 88 89 93 97 0

2007 0.64 0.93 2.09 1.65 0.93 1.21 1.12 0.78 1.29 1.09 3.11 0.60 0.63 0.24 0.16 0.14 2.17 4.58 0.00 0.37 2.87 0.01

Source: SITC Revision 4

197

2008 0.96 2.05 1.75 1.02 1.30 1.21 0.84 1.33 1.15 2.88 0.68 0.63 0.27 0.16 0.15 2.22 2.16 4.73 0.00 0.43 2.45 0.01

2009 0.67 0.97 1.41 1.86 1.06 1.39 1.13 0.87 1.19 1.12 0.57 0.74 0.57 0.31 0.17 0.16 2.12 15.16 0.00 0.34 1.73 0.01

2010 0.67 1.02 1.45 1.86 1.14 1.42 1.07 0.88 1.14 1.19 0.52 0.78 0.61 0.28 0.17 0.15 2.02 13.38 0.00 0.44 1.67 0.01

2011 0.69 1.01 1.40 1.76 1.07 1.45 1.18 0.95 1.11 1.27 0.49 0.77 0.61 0.25 0.17 0.16 2.04 12.83 0.00 0.82 2.11 0.01

2012 0.67 0.97 1.36 1.69 0.94 1.39 1.06 0.86 0.99 1.23 0.59 0.66 0.57 0.24 0.17 0.14 1.84 12.40 0.00 0.84 1.68 0.01

2013 0.66 0.97 1.32 1.62 1.00 1.40 1.07 0.85 0.96 1.23 0.57 0.61 0.57 0.24 0.17 0.14 1.87 13.48 0.00 0.82 1.28 0.01

198

APPENDICES

Table A.2.3: Commodity categories â&#x20AC;&#x201C; SITC statistics Number

Category

0 00 01 02 03

Food and live animals Live animals other than animals of division 03 Meat and meat preparations Dairy products and birdsâ&#x20AC;&#x2122; eggs Fish (not marine mammals), crustaceans, molluscs and aquatic invertebrates, and preparations thereof Cereals and cereal preparations Vegetables and fruit Sugars, sugar preparations and honey Coffee, tea, cocoa, spices, and manufactures thereof Feeding stuff for animals (not including unmilled cereals) Miscellaneous edible products and preparations Beverages and tobacco Beverages Tobacco and tobacco manufactures Crude materials, inedible, except fuels Hides, skins and fur skins, raw Oil-seeds and oleaginous fruits Crude rubber (including synthetic and reclaimed) Cork and wood Pulp and waste paper Textile fibres (other than wool tops and other combed wool) and their wastes (not manufactured into yarn or fabric) Crude fertilizers, other than those of Division 56, and crude minerals (excluding coal, petroleum and precious stones) Metalliferous ores and metal scrap Crude animal and vegetable materials, n.e.s.

Mineral fuels, lubricants and related materials Coal, coke and briquettes Petroleum, petroleum products and related materials Gas, natural and manufactured Electric current Animal and vegetable oils, fats and waxes Animal oils and fats Fixed vegetable fats and oils, crude, refined or fractionated Animal or vegetable fats and oils, processed; waxes of animal or vegetable origin; inedible mixtures or preparations of animal or vegetable fats or oils, n.e.s.

Chemicals and related products, n.e.s.

Organic chemicals Inorganic chemicals

04 05 06 07 08 09 1 11 12 2 21 22 23 24 25 26 27 28 29 3 32 33 34 35 4 41 42 43 5 51 52 53 54 55

Dyeing, tanning and colouring materials Medicinal and pharmaceutical products Essential oils and resinoids and perfume materials; toilet, polishing and cleansing preparations

TTIP - The 21st Century Agreement

199

Number

Category

56 57 58 59 6 61 62 63 64 65 66 67 68 69 7 71 72 73 74 75 76 77

Fertilizers (other than those of group 272) Plastics in primary forms Plastics in non-primary forms Chemical materials and products, n.e.s.

Manufactured goods classified chiefly by material Leather, leather manufactures, n.e.s., and dressed furskins Rubber manufactures, n.e.s.

Cork and wood manufactures (excluding furniture) Paper, paperboard and articles of paper pulp, of paper or of paperboard Textile yarn, fabrics, made-up articles, n.e.s., and related products Non-metallic mineral manufactures, n.e.s.

Iron and steel Non-ferrous metals Manufactures of metals, n.e.s.

Machinery and transport equipment Power-generating machinery and equipment Machinery specialized for particular industries Metalworking machinery General industrial machinery and equipment, n.e.s., and machine parts, n.e.s.

Office machines and automatic data-processing machines Telecommunications and sound-recording and reproducing apparatus and equipment Electrical machinery, apparatus and appliances, n.e.s., and electrical parts thereof (including non-electrical counterparts, n.e.s., of electrical household-type equipment) Road vehicles (including air-cushion vehicles) Other transport equipment Miscellaneous manufactured articles Prefabricated buildings; sanitary, plumbing, heating and lighting fixtures and fittings, n.e.s.

Furniture and parts thereof; bedding, mattresses, mattress supports, cushions and similar stuffed furnishings Travel goods, handbags and similar containers Articles of apparel and clothing accessories Footwear Professional, scientific and controlling instruments and apparatus, n.e.s.

Photographic apparatus, equipment and supplies and optical goods, n.e.s.; watches and clocks Miscellaneous manufactured articles, n.e.s.

Commodities and transactions not classified elsewhere in the SITC Postal packages not classified according to kind Special transactions and commodities not classified according to kind Coin (other than gold coin), not being legal tender Gold, non-monetary (excluding gold ores and concentrates) Gold, monetary Gold coin and current coin

78 79 8 81 82 83 84 85 87 88 89 9 91 93 96 97 I II

Source: SITC Rev.4 - United Nations Statistics Division

Among several trade agreements recently concluded, TTIP is of a particular importance. It connects two leading economic power centers of the world - the European Union and the United States of America. Jointly they cover half of the world’s GDP. Regardless the particularities of the Agreement actual and potential conflicts of interests, protectionist policies and the like, the sheer weight of such an agreement is difficult to overestimate. It may shift the economic balance of power in the world, and reinstate the dominance of Europe and North America, and put a barrier to Asian expansion. To be successful however, the Agreement must overcome traditional rivalries, particularly on the Western side of the Atlantic. America should stop regarding Europe as a competitor and remember once more that she is the proud heir of the European heritage, culture and tradition. This book provides multidisciplinary information on TTIP trade agreement negotiating process. It is a valuable source of information for students, professionals, and politicians.

From the review by Ignacy Chrzanowski – Former professor of economics and management at University of Sherbrooke. Adviser to the UN, EU and the World Bank.

The Transatlantic Trade and Investment Partnership (TTIP) is indeed a 21st century agreement. For the nations involved, it is extremely important to understand the process and consequences of this agreement. This book eloquently presents and analyses various aspects of the innovative negotiations starting from background information, describing the negotiating entities, defining the negotiating mandates and addressing the scope of the negotiations. The authors, based on literature and data research, provide interesting inputs on the current stage of the negotiations, their impact on the US and EU economies, and the partnership’s influence on third countries.

An innovative assessment of competitive strengths of the US and EU economies and societies has been presented, and its impact on TTIP negotiations has been captivatingly presented. The book provides practical examples of TTIP’s possible impacts on cargo flows and the need for adjusting infrastructure and transport services in anticipation of increased transatlantic trade. This opus provides a vast body of information and should be read by experts, government officials, politicians; and the private sector citizens – regardless of political affiliations. By providing both historical and up-to-date information this book may give the World a better understanding of the pros and cons of current global trade trends and agreements.

From the review by Jan Berg-Andreassen – Professor of economics, trade and transportation at Texas A&M University (ret.)

ISBN 978-83-64054-93-8