Trade Outlook In 2015: The Race Of The Mega-Regionals

For international trade, 2015 will be “a year of work” rather than of finalisation, as Viviane Reding put it.

The comment of the former European Commission vice president and Justice Commissioner focussed on the Trade in Services Agreement (TISA), as she is now the European Parliament’s rapporteur for TISA. The services agreement is still sailing under the radar compared to its bigger cousins, the US-EU bilateral Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership Agreement (TPP). Yet “a year of work” might well describe the 2015 agenda for the mega-regional trade negotiations too. Will any of them get to the finish line? A race is on in which the United States and European Union seem to anxiously look to China’s advance while fighting rising opposition at home.

Meanwhile, at the multilateral level, the World Trade Organization, meanwhile, also is having a busy year with negotiations and other activities (IPW, WTO/TRIPS, 9 February 2015).

More breakthroughs for the TPP are on for a 9-15 March round in Hawaii, in yet another of the myriad negotiating rounds taxpayers all over the world are funding. The 2015 US Trade Representative’s Trade Policy Agenda, available here, details strategies across the range of trade issues, including TPP, TTIP, intellectual property and innovation.

TTIP is making the biggest headlines currently in Europe. There is a kind of a TTIP frenzy making Cecilia Malmstroem say she felt a little like being the TTIP Commissioner instead of the EU Trade Commissioner. Despite or due to the buzz, it is easy to get very different, even contradictory statements on how fast the all-encompassing EU-US bilateral free trade agreement that includes publicly highly debated chapters like investor-state dispute resolution and regulatory cooperation will develop over the year.

TTIP and TPP – Entwined in a Duel?

“By the April meeting,” Malmstroem told reporters at a workshop of the Green Party in Brussels on 4 February, “we hope to have consolidated text on half of the TTIP chapters.”

But Malmstroem also acknowledges “there are still a lot of hindrances, a lot of red tape.” And on the regulatory cooperation on the agenda in the February negotiating round Malmstroem herself engaged in expectation management, saying, “We do not expect a dramatic breakthrough. That was not the intention.”

Green Party trade experts even question whether much will happen in 2015 and the gap between the first 2015 negotiating round in early February and the second in April might support the argument that the pace is not too fast. The US first wants to close TPP first, if you believe Green Party trade politician Ska Keller.

US officials were eager to decline the notion that they are trying to finish off TPP at the expense of TTIP. US Vice President Joe Biden in one of many statements made during his early February visit in Munich, said, “TTIP is not a stepchild related to TPP. We have not taken off our focus off Europe. We have not decided that the future lies in the Pacific. We are a Pacific power and will remain so. But we are also a transatlantic power.” The German Chancellor and high-level EU politicians reinforced this view in their speeches.

In economic value, the TTIP still looks bigger, with EU-US trade amounting to US$ 6.5 trillion annually. By contrast, trade among TPP partners (originally only Brunei, Chile, New Zealand and Singapore and now eight additional countries, the US, Australia, Canada, Japan, Malaysia, Mexico, Peru and Vietnam) amounted to more than US$ 2 trillion in 2012, according to a study from the World Economic Forum. In the number of negotiating rounds and development of text, the TPP, which started back in 2006 (US joining in 2008), should be ahead.

Being on Top to Set the (Global) Standards

While one might wonder how far the EU negotiators could be manipulated by what could be perceived as a race to the finish line, both parties, EU and US, come up with the same sort of reasoning for the urgency.

“It is necessary to help shape the global economy,” Biden said in characterising the transatlantic economic integration to the military integration by strengthening NATO. He added, “If we finalised and united the two agreements in free trade that will drive a coalition too large for any country to ignore.”

Malmstroem, in her pledge for a quick finalisation of the TTIP, underlined that despite some differences, EU and US views are similar on many issues. “We can set standards. If we don’t do it somebody else will.”

In the effort to export one’s own standards, the EU does not want to fall behind its transatlantic partner’s (US) efforts. The list of ongoing bilateral negotiations in which the EU is involved is 13 fine-print pages long, but some long-time negotiations like the one with India, once said to be close, have gone stale.

Where the US negotiates TPP, the EU lists the deal with Singapore as being on its way to ratification, the one with Japan (round 9 ended on 27 February) as being finalised this year, and the one with Vietnam as being finalised “in the next months.”

Both the EU and the US also have a China investment agreement high on their agenda. Toward the Pacific, the EU wants next to bring Ecuador and Bolivia into the trade deal already negotiated with Colombia and Peru.

The Race of the Mega-Regionals

Certainly 2015 must be seen as the year of the mega-regionals. TPP and TTIP standard setting is driven by competition from mega-regionals on the negotiating tables in the capitals of Asia.

One is the “Regional Comprehensive Economic Partnership” (RCEP) negotiated by the 10 member states of the Association of Southeast Asian Nations (ASEAN) and its FTA partners, Australia, China, India, Japan, Korea and New Zealand.

Mustapa Mohamed, Malaysia’s minister for international trade and industry, confirmed during the recent World Economic Forum that the partners are committed to conclude RCEP in 2015. Three more negotiating rounds for 2015 are listed on the official ASEAN calendar for April, May/June and September, with a high-level ministerial in August. After the seventh round in February, reports also spoke of a summit.

“The ASEAN Economic Community and RCEP plus six will be our priority,” Mohamed told a panel on mega-regionals, underlining that it will be easier to finalise if ambitions are not too high.

Malaysia and three other members also are negotiating the TPP. US Trade Representative Michael Froman during the same debate pointed out that with TPP “we are very much in the endgame,” but acknowledged that there were still some hurdles. The meeting in early March will again try to get a breakthrough.

China’s absence from the TPP table supports the perception that there is a battle about who will set the standards for trade integration in the Pacific. According to the WEF study on the mega-regionals, “geopolitics contribute in part to mega-regionalism, in particular with the US proponents of the TPP seeing it as a way of thwarting the emergence of a China-centred East Asia economic bloc.”

Sherry Stephenson, senior fellow at the International Centre for Trade and Sustainable Development (ICTSD) said in the WEF study that “a potential future TPP and RCEP, and possibly a CJK (China Japan Korea) FTA, could serve as models for the WTO.”

While Wan Meng, dean of the School of Law, Beijing Foreign Studies University, was clear about the race, saying: “If the TPP is not well received by participating members, China would be in a comfortable position to build on its economic leverage to participate in norm setting, and to channel the TPP into an RTA [regional trade agreement] based more on a set of compromised terms. This may lead to the rise of a politically driven divergent dual-track: China taking the lead through the Asian track and the US taking the lead through the TPP track.”

China’s promotion of RCEP – and the additional three-party FTA talks between China, Japan and Korea (CJK) – are “a strategic response to TPP,” Korean Researcher Kim Tae Kyong has concluded. For Korea, as for some other Asian countries, it is still open which of the mega-regionals they will join, TPP or RCEP (or both). Korea is considering (as is Japan) becoming the bridge country between TTP and RCEP countries. Last week, China and Korea started bilateral talks, away from the mega-regionals. Nobody wants to stay away from the trade deal monopoly.

TISA – the Most Important Deal?

Some people point to the Trade in Services Agreement (TISA), being negotiated by 51 states including the EU 29, but excluding China, as being more important than mega-regionals.

Instead of being regionally focussed, TISA wants to tear down non-tariff trade barriers and push integration in services. It is still “early days” for TISA, Malmstroem told journalists recently. The next meeting is set for 13-17 April, which according to the EU is round 12, with the 13th round set for July.

TISA is special in several respects. One is the combination of the two major ways of scheduling commitments – it combines the more traditional positive list approach for market access with the more “modern” negative list for national treatment. Using positive list makes countries list all those sectors they want to commit to liberalisation according to the agreement. The negative list approach adds everything not listed to the liberalised markets.

The EU Commission defends the mix. “It allows for a compromise between different approaches traditionally taken by various participants to the TISA negotiations,” the Commission official told Intellectual Property Watch. “The two ways of listing commitments differ only in technique of listing reservations, but on substance are identical and do not have any impact on the level of ambition, nor on the protection of sensitive activities.”

But experts like Markus Krajewski, professor of international economic law at the University of Nuremberg-Erlangen (Germany), warned against the added complexity. “If you miss something on the positive list, you can add it later and no harm is done,” he said. “If you miss listing something on the negative list, it is automatically gone.” So-called ratchet clauses can disallow taking something back.

The other specialty of TISA is that it might be an interesting precedent for a deep level of market integration. Being an agreement focussed on trade in services especially, it naturally is not tackling tariffs, but non-tariff trade barriers, also called technical trade barriers.

“In essence that is what we can call regulation,” said Krajewski. Agreements on services “are focused on quantitative restrictions (for instance, limiting the number of service suppliers in a given sector) and non-discrimination between domestic and foreign service suppliers (national treatment),” the European Commission wrote in answer to questions by Intellectual Property Watch.

TISA and Telecom

Larry Stone, president, public & government affairs at British Telecom, during a recent hearing in the European Parliament explained that the telecommunication industry is highly interested in exporting the non-discriminatory access policy to the last mile of networks in the US for example. For the telecom sectoral chapter, the EU Commission wants to address “provisions on regulatory authority, authorisation and licensing procedures, universal service and scarce resources,” he said.

The EU is less keen on e-commerce and data flows, where the US would like to see a liberal standard. “The importance of data flows for the modern economy was discussed, however, many questions on that provision remain unanswered, hence nothing is yet agreed,” the Commission underlined after the most recent round in the second week of February.

The examples also illustrate why IT businesses on one side and non-governmental organisations on the other consider trade agreements the new platform for attempts to globally standardise internet-related politics.

Stumbling Blocks, Growing Opposition

The EU’s ambitious list of FTAs and calls for a quick closure of TTIP and TISA cannot derogate from the fact that the initialling of the treaties does not at all mean they are done deals, especially in the post-ACTA [Anti-Counterfeiting Trade Agreement] world. Never before have trade deals received such an amount of public and media attention. With bigger attention, public opposition to classical trade policy is on a sharp rise in most regions, with for example local authorities joining the notorious non-governmental trade critics.

Perhaps the biggest stumbling stone for the negotiators of the EU currently is whether they will be able to get opposition against their trade deals under control.

The fate of CETA, the Canada-EU trade deal, will be of considerable importance: will the already adopted text be passed by member states (if decided CETA is a mixed agreement and therefore needs member states voting) and the Parliament that killed ACTA after mass protests. In case CETA fails, traditional trade politics will take a rather obnoxious hit and the future of other agreements with Europe might be clouded. CETA according to Malmstroem is currently prepared for presentation in all languages to the EU bodies.

The biggest fight in the US at the moment is about legislation to streamline the passage of deals by passing a new edition of the “trade promotion authority” legislation. The TPA, which was in force until 2007, would allow the US administration to finalise and sign the deals with Congress limited to a yes-or-no-vote in the end – a procedure in place also for the unruly EU Parliament which has started to demand a bigger role during the negotiations. The EU Parliament, for example, by now has set up a TISA monitoring group and will pass resolutions on TTIP and TISA later this year. The EU Parliament has requested broader access to the negotiating documents, too.

In the US, a hearing on the “fast track” TPA bill planned for 26 February was postponed over differences over the mega trade deals. While Senate Finance Committee Chair Sen. Orrin Hatch (R-Utah), wanted to go ahead, Ranking Democrat Ron Wyden (D-Oregon) called this “premature,” according to US news reports. Organisations like the Electronic Frontier Foundation warn against sweeping IP rights in the deals, and US politicians like Sen. Elizabeth Warren (D-Massachusetts) have started to question, for example, the highly controversial investor-state dispute settlement (ISDS) mechanisms.

“ISDS would allow foreign companies to challenge US laws – and potentially to pick up huge payouts from taxpayers – without ever stepping foot in a US court,” Warren wrote in a recent op-ed for the Washington Post. ISDS also was rejected last week by representatives of all major party groups in the Trade Committee of the European Parliament.

In sum, 2015 looks like a lot of work for trade politicans and no clear deadlines for the finalisation for the big deals.