Trade Negotiations Little Chance of Breakthrough

Hopes that a U.S.-E.U. free trade deal could gather steam were quickly dashed this week. The issues of investor protections and public procurement remain major sticking points in the trans-Atlantic trade treaty between Europe and the United States.
The opponents of the trade treaty are very visible.

It seemed like a ray of hope. European Union officials this week hailed a free-trade agreement reached between the 28-nation bloc and Canada, one that included improvements to investor protections.

After all, the talks with Canada over the Comprehensive Economic and Trade Agreement, or CETA, which ran through much of last year, had been a sort of practice run before negotiations began in earnest on a much bigger prize: A trans-Atlantic trade treaty between the European Union and the United States.

The E.U. bloc’s executive arm, European Commission, had hoped the CETA agreement could give fresh momentum to the talks on the Transatlantic Trade and Investment Partnership, or TTIP, with the United States. Those hopes could be heard in Brussels as late as Monday of this week.

And just as quickly, the hopes of a breakthrough have been dashed once again. Major sticking points clearly remain in the negotiations over what would be the world's biggest free-trade deal.

The souring mood comes just as a new data highlighted what's at stake for Germany: The United States became Germany's largest trading partner in 2015, supplanting France for the first time in decades with a total import-export volume of €173.2 billion, the country's federal statistics agency said Wednesday.

By making the system work like an international court, these changes will ensure that citizens can trust it to deliver fair and objective judgments. Cecilia Malmström, European Trade Commissioner

The key stumbling block to a deal: Washington wants ad-hoc arbitration panels to resolve investment disputes that might arise from TTIP between multinational companies and governments. But many Europeans view these tribunals, which have long been a part of free-trade deals in the past, as undemocratic and non-transparent.

The European Commission has proposed a permanent investment court system as an alternative. For Washington, it has now been made clear that a permanent court is a potential deal breaker.

Another major stumbling block: Brussels wants the United States to open its market more to European exports, particularly when it comes to services and public procurement. European negotiators have called on Washington to repeal what they consider protectionist legislation, such as the Buy American Act.

The CETA agreement on a multilateral investment tribunal was a ray of hope probably above all for Sigmar Gabriel, Germany’s minister for economic affairs and energy, who is also vice chancellor of Germany and chairman of the center-left junior coalition partner, the Social Democratic Party of Germany.

Mr. Gabriel, who has had to face down major opposition to the free-trade deal from within his own party and the German public, had greatly supported the new court concept as it has now been included in CETA.

Mr. Gabriel’s state secretary in the ministry of economics, Matthias Machnig, said, “I welcome in particular that it was possible to write down with Canada the main elements of the E.U.’s reform proposal for a modern investment protection.”

But the damper on any enthusiasm wasn’t long in coming. A counter-offer that Washington presented this week, dealing with public procurement, will hardly satisfy the Europeans. U.S. negotiators warned those familiar with the negotiations that they should get ready for a disappointment.

Sources in the European Commission said it won’t finalize TTIP without substantial changes in the restrictive bidding practices for public contracts.

The motto “Buy American,” however, seems set in stone by the United States. If progress isn’t made with the issue – and the latest U.S. offer suggests just that – it could become another make-or-break factor for TTIP.

“We expect the U.S. side to seek solutions to improve market access on the sub-federal level as well,” said Volker Treier, chief economist and managing director of the economic policy division of the Association of German Chambers of Industry and Commerce (DIHK).

It all marks a major change in tone from the E.U. talks with Canada.

With CETA, Canada and the European Union had agreed to drop the conventional and less transparent system of private arbitration boards for investment protection. Critics have long been finding fault with the far-ranging legal options corporations have to challenge governments.

“By making the system work like an international court, these changes will ensure that citizens can trust it to deliver fair and objective judgments,” said European Trade Commissioner Cecilia Malmström.

In the future, disputes between investors and governments would be tried, negotiated and settled before a new multilateral investment court. Appeals would also be possible. The European Union is demanding the same thing for the TTIP agreement.

Many in the European Green Party are still leery, even of the reformed court proposal. And warnings are also coming out of Germany, where the public has long been more opposed to any free-trade deal than any other European Union member.

“The criticism over CETA and TTIP won’t be silenced by this change in the arbitration procedures issue,” said Michael Schlecht, economic policy speaker of the Left Party’s parliamentary group.

Negotiators in Brussels and Washington hoping to seal the deal have long faced criticism from across Europe, especially from Germany. Trade unionists fear the deal will harm German employees’ rights, while consumer and environmental organizations fret that hard-won product standards will be watered down.

When a protest petition was handed over to the European Parliament in November, over half of the 3.28 million signatures came from Germany.

The trans-Atlantic trade treaty has been the subject of 12 rounds of negotiations in Brussels. Two more rounds are planned for the summer. The free-trade pact is designed to help companies operate in both regions.

Despite the many setbacks, the Americans are determined to conclude the TTIP negotiations and have a signed deal before President Barack Obama leaves office in January 2017. If negotiators fail to produce a framework agreement by then, TTIP could fall by the wayside under a future U.S. administration.


Dana Heide is a correspondent for Handelsblatt in Berlin, focusing on energy policies, small and medium-sized companies and innovation. Thomas Ludwig is a Handelsblatt correspondent in Brussels. Torsten Riecke is Handelsblatt's international correspondent. To contact the authors: [email protected] , [email protected] and [email protected]