Talking TTIP 'Missing Out on a Historic Opportunity'

Airbus boss, Tom Enders, and Gregory Hayes, UTC's chief executive, are fiercely in favor of TTIP, the trans-Atlantic free trade deal. The two senior executives told Handelsblatt that Germany stood to benefit from the agreement.
Tom Enders (l) and Gregory Hayes in Berlin.

Airbus chief executive, Tom Enders, and Gregory Hayes, the head of American firm, United Technologies, recently sat down with Handelsblatt editor in chief, Sven Afhüppe and the paper's aviation correspondent, Markus Fasse, in Berlin. The two senior executives spoke fervently in favor of the trans-Atlantic free trade deal, TTIP, arguing that Germany of all countries would benefit enormously from the agreement.

 

Chancellor Angela Merkel has just called for negotiations on the free trade agreement between Europe and America to be speeded up. How realistic is it for TTIP to be finalized before the end of this year?

Tom Enders: That’s difficult to assess. The Chancellor’s target seems an ambitious one, but in view of the upcoming presidential elections in the United States, there is hardly any alternative. There are also key elections on the horizon in Europe, for instance in Spain and the United Kingdom. It is therefore advisable at any rate to bring things to a close this year, before the free trade agreement gets made into an election campaign issue. Before that point is reached, however, some opposition still has to be overcome.

Gregory Hayes: In the U.S., there’s no real opposition to the free trade agreement with Europe. The Americans see more opportunities than risks. There was significantly more debate about NAFTA, the free trade agreement with Mexico and Canada.

Even so, the U.S. government seems to be significantly more interested in finalizing the free trade agreement with Asia. What’s the reason for that?

Mr. Hayes: America has a very long tradition of free trade with Europe. The situation with Asia and the Pacific region is very different. Trade issues with China are a much more emotive matter in the United States. Also, the Asian Pacific economies are still growing at a fast pace. That’s why it’s just as important for the U.S. government to reach a comprehensive agreement for that region.

Mr. Enders: That’s a strategic point, and one that many decision and opinion makers in Europe overlook: Europe is faced with tough, global competition. Unless European governments commit more strongly to reaching a transatlantic free trade agreement, there’s a risk that the Americans may turn increasingly to Asia. Because the U.S. not only has a trans-Atlantic option, but a trans-Pacific one too. That wouldn’t be good for Europe.

This dependence on America seems to be an important reason why the debate over TTIP is so highly emotive and not so much based on facts.

Mr. Enders: What’s really lacking in many areas of this matter is political vision. We in Germany, for example, have got lost in what are sometimes preposterous debates over chlorine-washed chickens and the like. On top of that, the German public at large has lost a lot of its trust in the Americans over the NSA affair. This is a point that must not be underestimated. Despite that, it’s good and right that Chancellor Merkel and Federal Economics Minister Gabriel are now stepping up the pace and have set an ambitious timetable. If the government now brings its political influence to bear, then there will surely be some movement in the process. Otherwise there’s a great risk of the free trade agreement being crushed by the various interest groups and of Europe missing out on a historic opportunity.

Quite specifically, there are great concerns that European standards in the areas of environmental protection, food or labor rights might be undermined. How do you respond to the critics?

Mr. Hayes: Yes, one repeatedly hears the accusation that U.S. food safety is inferior for the simple reason that we wash our chickens in chlorine before we sell them. Or that our services are of a lower standard. I don't share these concerns. And even if certain products or services don’t come up to European standards – where’s the problem? Ultimately, it’s the educated, empowered consumer who decides what they’d like to buy.

Mr. Enders: I think the opponents of TTIP are suffering from a great misunderstanding. Many of them fear that there will be changes to German or European law. But that’s not the case. German food law will not be affected by the free trade agreement. Unfortunately, the debate over TTIP has become such an emotive one that, in some areas, sound arguments no longer prevail.

How much do your companies stand to benefit from TTIP?

Mr. Enders: Well, civil aviation is already a global business. Standardization and certification have long ceased to be issues trans-Atlantically. And we sell our aircraft in the U.S.A. just as we do in Europe or elsewhere. Yet TTIP is good for the economy as a whole. If the economy grows, then air traffic will increase and with it the demand for our products. So we will profit from TTIP at least indirectly. All I can say is that it’s a unique opportunity. For years now, we in Europe have been engaged in endless discussions over how to promote growth. TTIP finally offers an opportunity to strengthen growth across all sectors, to create jobs in industries of every size and to boost competitiveness. So what mystifies me is that the greatest opposition to the free trade agreement comes from the very country that stands to benefit most from free trade – Germany.

Will TTIP help to drive innovation?

Mr. Hayes: Absolutely. The larger the market, the greater the opportunity to introduce and realize innovation. The aviation industry is a good example of how successful this kind of thing can be. The aviation authorities in the U.S.A. and Europe recognize each other’s approval procedures. With our subsidiary Pratt&Whitney, we’ve developed a new engine, the geared turbofan, which makes it possible to reduce the fuel consumption of a medium-range jet by up to 15 percent. Airbus, as a European manufacturer, has given us the opportunity to use the engine. And, together, we’ve been highly successful in the market.

Mr. Enders: An open market boosts our performance and competitiveness. To give you two examples: Every year, Airbus sources goods worth $14 billion from the U.S. market – around half of them from UTC. This great partnership distinguishes us from the rest. Airbus and UTC are, however, also facing extremely tough competition, for instance from our helicopter subsidiaries Airbus Helicopters and Sikorsky. In short, competition and cooperation, that’s not a contradiction in a large, common market. Ultimately, both companies and our customers benefit.

 

 

That’s certainly true with regard to civil aviation. In the military sector, on the other hand, there’s still very little cooperation between the United States and Europe.

Mr. Enders: Yes, it’s an unfortunate fact. Today, very few trans-Atlantic cooperation programs remain. That didn’t used to be the case. But in that respect, we Europeans need to put our own house in order first, because we hardly have any truly European defense programs either, and the ones we do have are becoming less and less. There has likewise been little progress in terms of industrial consolidation. Market segmentation and petty national jealousies are hampering or even preventing industrial integration beyond state borders. The real problem today isn’t joint defense projects, industrial consolidation or a European army, however. Rather, the European governments are not taking defense as one of the most important functions of the state seriously at all – despite increasing threats in our vicinity. The fact of the matter is, defense budgets will continue to be reduced drastically.

Mr. Hayes: But there are still some trans-Atlantic projects. Take the Joint Strike Fighter, the largest defense project of the U.S. armed forces, for instance. It’s being built by Lockheed Martin; we’re supplying the engines. Yet dozens of other companies are involved, mainly from Europe. There’s no other option, because the technologies are today so expensive that no country can any longer go it alone.

In Germany, the TTIP negotiations are tainted by an air of secretiveness. Might greater transparency lead to higher approval for the free trade agreement?

Mr. Hayes: To begin with, negotiations are always conducted behind closed doors. There’s nothing new about that. Ultimately, the results must be made public and approved by elected parliaments. That’s fair and transparent. Not everything is appetizing about the production of a sausage, but, in the end, the result is usually very good. People need to have a little faith that Americans and Europeans will negotiate for the benefit of their own respective continents. Of course, the details of the agreement are also important. But the most important thing is to generate additional prosperity and more jobs on both sides of the Atlantic.

Mr. Enders: Behind the criticism, there’s the notion that the only good politics is entirely transparent politics. But that’s a false ideal, even in democracies. There must also be room for confidential negotiations. The same is true of the business world when the way is being paved for a big deal. At the end of the day, of course, you have to try and sell your results to the public and explain them.

The financial sector is currently excluded from the negotiations. Shouldn’t the banks in particular be part of TTIP?

Mr. Hayes: The regulatory requirements for the financial sector are many times tougher than they are for the rest of the economy. Remember that the banks are already in a place where they could never have imagined they would be. Just think of the stress tests or the capital requirements. Any additional regulation of those is really not necessary.

There is great fear in Germany that international arbitration courts could undermine German law.

Mr. Hayes: Almost all free trade agreements already include the possibility of arbitration courts becoming involved. This is nothing new – and incidentally a clever invention by the Germans. Arbitration courts are often simply a necessity, because the respective legal systems give rise to undesirable and indeed unintended results. Companies need the greatest possible degree of legal certainty for investment, though.

Mr. Enders: The only way I can explain this mistrust here in Germany is the typical German faith in the state. People have more confidence in the state and its laws than in free and independent bodies like an international court of arbitration. Yet the Germans more than anyone should support this point. After all, I very much doubt whether it would ultimately be preferable to go before a U.S. court.

Mr. Hayes: That can quickly prove expensive!

Mr. Enders: For me, this is an ideologically charged debate. Those making themselves heard are mainly people who have little idea of economic realities. Arbitration courts are denounced as the work of the devil, which they simply are not. It is quite evident that opponents of free trade want to torpedo the agreement with America with all their might. As I see it, it is like desperately seeking to find fault.

Concern about potential negative developments has caused the approval rate to fall to only 39 percent in Germany now. How can that be changed?

Mr. Enders: I believe that we in industry should play a greater part in the discussion. We shouldn’t tire of continuing to stress the benefits of TTIP. It is about the big picture, the question of how we generate growth in Europe again at last. And with TTIP we have a chance to do this that only comes around once in a generation. In France, by the way, there is far higher approval of TTIP than in Germany. Isn’t that strange?

Isn’t the criticism of TTIP a general expression of growing skepticism towards a free market order?

Mr. Hayes: We are traditionally open to free markets and competition in America. People are convinced that open markets create jobs. Whereas the Europeans trust the paternal state, the Americans don’t trust “Uncle Sam.” That is a key difference. It is probably what led to the U.S. economy overcoming the effects of the financial crisis significantly faster than Europe.

Mr. Enders: This skepticism in Europe is a fact, and it has grown as a result of the financial crisis. Trust in the state is greater than the trust in markets. That’s a bitter fact, but it’s not the last word. We have to make it clear that in Germany, we’re currently experiencing the best times we’ve had for a long time, economically speaking. But the way to progress even further in the future is not by taking a rest and safeguarding our current status now. The German government has even dialed back key elements of the successful “Agenda 2010,” creating new economic burdens as a result. And further “good deeds” are in the making socially. Everyone knows that this is taking us in the wrong direction. But it just happens to be popular. That’s why it’s all the more important to improve opportunities for growth in Germany and Europe with the free trade agreement – without new borrowing and without pouring billions more down the drain. To this end, we in industry need to give the government our full support.

 

 

This interview was conducted by Sven Afhüppe, Handelsblatt's editor in chief, and Markus Fasse, the paper's aviation and auto industry correspondent. To contact them: [email protected], [email protected]