A new approach to EU-US trade: Less is more

Brussels and Washington believe they have found a recipe for a speedy transatlantic trade deal: Think small.

U.S. Trade Representative Robert Lighthizer is pushing to “finalize outcomes” with the EU by November, when America will hold critical midterm elections that will determine President Donald Trump’s ability to govern. The EU has agreed to push for this “early harvest.”

It is increasingly clear that severe differences over cars and farming mean a mega deal will have to wait. Instead, any near-term deal will focus on regulatory cooperation on topics such as car blinkers, cosmetics, insurance and driverless vehicles.

Still, even that mini-deal is attractive. Trump wants a success story for the impending elections, while Brussels wants to create goodwill that will stop Washington following through on threats to impose higher tariffs on the European car industry.

Susan Danger, chief executive of the American Chamber of Commerce to the EU, said one school of thought for how to move forward is “to do things piecemeal and address the low-hanging fruit.”

“Once you get some momentum up, people believe that things can be done, and then they’ll do more things,” she said.

The “early harvest” approach should enable EU and U.S. negotiators to avoid the toxic political backlash that killed the far more wide-ranging Transatlantic Trade and Investment Partnership negotiations, which collapsed in 2016. To its vocal critics in the EU, TTIP was cast as an American Trojan horse that would undermine Europe’s food and environmental standards.

“Of course business would like to have a more ambitious deal that, for instance, includes services — of course we would like that,” said Luisa Santos, director for international relations at BusinessEurope, which represents companies from 34 countries. “But if the objective is to have a positive outcome in a relatively short period of time, then the scope needs to be limited.”

A peace deal on certification

Strategically, Lighthizer and Republican senators like Lindsey Graham, one of Trump’s closest allies, hope that a swift truce with the Europeans will enable them to convince the president to team up with the EU against their real bogeyman on the trade front: China.

Concretely, this means postponing more difficult discussions on slashing tariffs and focusing on the alignment of safety standards or certification for products like cars, chemicals and pharmaceuticals. “The more immediate focus is now on the area of regulatory cooperation,” the European Commission said last week.

But it also means doing a number of small side deals — such as an EU-U.S. agreement on drug inspections inked last year — rather than aiming for a traditional, all-embracing trade accord.

Elena Bryan, a former senior U.S. trade negotiator in Brussels, said this approach makes sense: “In most cases, tariffs are not the biggest barrier. It’s often the behind-the-border barrier, in the form of different standards or other divergences. You need to address those issues to make the tariff reduction meaningful.”

Efforts to harmonize safety testing procedures, certification processes or product labeling across the Atlantic can draw on previous achievements from TTIP talks. The wastage of two differing testing and labeling regimes is a common bugbear of companies on both sides. A joint EU-U.S. report from January 2017, published as TTIP was going into deep freeze, highlights the “good progress” made on regulatory cooperation.

EU trade chief Cecilia Malmström stressed during a recent parliamentary debate that “regulators made a lot of progress during the TTIP talks.”

Some business groups have already signaled areas they feel are ripe for negotiation. The American Chamber of Commerce to the EU put out a position paper in March, recommending, for example, to harmonize testing and labeling requirements for cosmetics, a change that would save costs for companies who currently have to undergo different testing and labeling procedures on either side of the Atlantic.

“It’s also a test of political will, to see whether [a trade negotiation with Trump] is doable,” said Bryan, who negotiated TTIP and now works for the ECIPE think tank.

Not so simple

Not everybody, however, reckons that regulatory cooperation will be an easy task. Chemicals proved a difficult area during the TTIP talks, for example.

René Van Sloten from the European Chemical Industry Council said the U.S. and Europe were unlikely to harmonize laws regarding chemicals or recognize each others’ legislation: “This is out of the question as the two systems are too different.” However, there could be scope for sharing data and studies on the safety of chemical products, he added.

Other sectors like cosmetics proved equally tough during previous negotiations, said Reinhard Quick, a trade lawyer and member of the now defunct TTIP advisory group. He mentioned cars as one sector where both sides have made more progress so far and where they could build on that more easily.

Still, “I doubt whether you can sell that as an early harvest,” he said. In any case, the EU would need a new negotiating mandate before any negotiations could begin, which would further delay ambitions for quick wins, Quick said.

“I can’t imagine they would negotiate regulatory deals on the old TTIP mandate. This would immediately resuscitate many deeply rooted concerns in the civil society,” he said.

One EU diplomat said that doing narrow regulatory deals might spare the European Commission from trouble with France, which has insisted that all trade partners must ratify the Paris climate agreement, from which the U.S. withdrew. After all, a small deal on car blinkers might not even be perceived as a trade agreement, the diplomat said.

Marietje Schaake, a Liberal lawmaker in the European Parliament, warned that the American approach of first doing regulatory issues and then dealing with tariffs comes with a risk. “This underlines the sectoral approach that Lighthizer is known for,” she said. “He wants to negotiate sector by sector. But it’s an outdated concept, and it bears a clear risk: The hard issues get pushed to the back.”

Doug Palmer contributed reporting. 

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