TTIP: Where do we stand?

As the fourth round of negotiations approaches, it is about time to look at how the horizontal coherence chapter of TTIP is gradually taking shape.

 

I have been meaning to blog for the past few months about the ongoing negotiations aimed at concluding the Transatlantic Trade and Investment Partnership (TTIP).

After an initial post in reaction to the announcement of the launch of the TTIP negotiations, I deliberately decided to abstain from providing any further comment during the first months of negotiations.

While many different circumstances explain that, there is one factor that actually dictated that choice and somehow put me off: the lack of access to what was on the table of the negotiators. In the absence of a clear, defined roadmap sketching out the structure of a purportedly innovative free trade agreement, it appeared an Herculean task to speculate on the possible scenarios debated within TTIP.

My first meetings with representatives of both the EU and US delegations on the occasion of the second (delayed) negotiation round last November in Brussels confirmed that impression.

The state of advancement of the negotiations was so embryonic that not even the chief negotiators appeared capable of addressing basic questions about how they intended to proceed in order to organize their work. There was no reason then to join the choir of those complaining about the lack of transparency of the negotiations: there appeared to be so little on the table. Yet already at that time it clearly emerged that both the US and EU delegations shared a common philosophical approach to the incipient negotiations. The US and EU chief negotiators were (and continued to) speaking with one voice.

In these unexpected circumstances, I had no choice but play the academic game which consists of : relying on leaked sources (thanks to a few brave NGOs we got some documents – though only from the EU side), interviewing how many TTIP players as possible and speculating in abstracto on what this agreement may look like, one day. In the meantime I have being entrusted by the European Parliament to prepare a policy report focusing on the role that the US Congress and the European Parliament may – or should – play in TTIP.

It is against this backdrop that I would like to share a few reflections. These will illuminate my forthcoming hearings at the European Parliament where I will have the chance to address the Legal Affairs Committee, the Transatlantic Dialogue Steering Committee as well as the US Delegation at the European Parliament this coming Tuesday.

Given the emphasis of the agreement on tackling regulatory barriers, both the EU and US claim that TTIP would be – together with TPP (see leaked memo) – one of the first FTAs construed upon a horizontal (i.e. cross-sectoral), regulatory coherence chapter, which should also remain a ‘living’ agreement, capable of incorporating news areas and creating the conditions to continuously adapt towards greater regulatory compatibility. This chapter would apply to all goods and services sectors thus providing a general discipline for policymakers when monitoring existing regulations and adopting new ones (NB: regulations here refer to both legislative and regulatory measures). More specifically, this horizontal regime is set to promote regulatory convergence through the adoption of a suite of procedural requirements, such as public consultation, regulatory impact assessment (RIA extended to cross-border effects), early warnings, ex post analysis of existing regulations, etc. that build upon – rather than duplicating – existing procedures under the relevant WTO Agreements, i.e. SPS and TBT. These will be upgraded within TTIP by becoming SPS+ and TBT+, but we don’t know yet whether the additions to the current discipline will merely consist in further procedural requirements or other disciplines.

At a time of growing international interest and policy diffusion of these meta-rules (i.e. rules about how to adopt rules) and relatively failure of the multilateral trade regime to address NTBs, the prospect of using participatory and analytical tools to promote rationality in regulatory decision-making beyond the nation-state appears extremely appealing.

The basic assumption behind a horizontal chapter is that substantive regulatory compatibility, and therefore a more integrated transatlantic market, can be facilitated by convergence of the general method in which regulators approach standard setting. Convergence around a set of methodological tools aimed at improving the quality and rationality of legislation might indeed offer a promising course of action to remove existing barriers and prevent new ones from arising. More ambitiously, by focusing on the “how’s” of regulation instead of on the “what’s”, horizontal regulatory cooperation seems to offer an appropriate contribution to a global governance project “shaped and formed by an overarching cosmopolitan legal framework.” I wrote about this here

Although potentially disruptive – especially if measured against previous attempts at regulatory convergence –, this approach begs a set of very important and inescapable questions. Let me focus on a couple of them, probably the most difficult one.

1. Who will be subject to the respect of this set of regulatory requirements?

Anyone who is familiar with the EU and US constitutional systems will immediately realize that while these requirements are susceptible to apply in the EU to both legislative and rule policy-making, they don’t have vocation to apply to US legislative-making. Who does seriously imagine the US Congress to run impact assessment, cost-benefit analysis or public consultations on its bills? Nobody. A glance at the Regulatory Co-operation Council model followed by the US with Canada and Mexico (and identified as the way forward by the US delegation) illustrates the point. This permanent regulatory co-operation structure focuses exclusively on rules (not on legislation) and involves only the regulatory oversight bodies (not the legislatures) of these countries. Moreover, its focus is on tackling divergences arising out of existing regulations, not preventing new ones. Finally, this model relies upon and integrates external input that mimics more the US notice-and-comment than the EU public consultation (which by the way is very limited if not existent in EU rulemaking).

 

2. What will be the criterion triggering the application of this horizontal mechanism and its set of procedural requirements?

One may suppose that this may be linked to the ‘significant impact’ of covered regulations on transatlantic trade and investment flows. Yet it remains the question of how to identify, determine and quantify such an impact. The 2012 US Executive Order  EO 13609 on international regulatory cooperation, and in particular sect.4,  provides for a definition of ‘international impact”:  (b) ‘‘International impact’’ is a direct effect that a proposed or final regulation is expected to have on international trade and investment, or that otherwise may be of significant interest to the trading partners of the UnitedStates.

This criterion of international impact does not seem to provide much guidance in the framework of TTIP. Moreover, this binds the US administration in rulemaking but not the US Congress in legislative making.

 

3. What mechanism will ensure the implementation and the enforcement of these provisions under both legal systems?

There is currently a lot of confusion on this point, yet very little substantive debate. The institutional framework of TTIP seems to encompass at least three different bodies: (i) a body with regulatory competences (e.g. Regulatory Cooperation Council or committee), entrusted with overseeing the implementation of the regulatory provisions of the TTIP; (ii) a “body with decision-making power” (e.g. ?); and finally (iii) a dispute settlement mechanism.

 

Conclusions  

Regardless of the institutional mechanism that will eventually be adopted within TTIP, the question is the extent to which the US legal system will accept to be bound by its decisions.

What emerges today is a feeling of a possible imbalance in the way the horizontal coherence chapter of the TTIP agreement may develop under the current constitutional and institutional realities of each sides of the Atlantic.

This seems to derive from the different scope of the horizontal chapter (rulemaking and legislative-making in the EU, but only rulemaking in the US) as well as from its more limited enforcement (how to induce the US Congress to abide by procedural requirements negotiated and imposed by the Executive?).

More refined ideas will be coming soon….