ECONOMIST: “TTIP IS DOOMED”
The free trade agreement between the US and the EU will never become reality, says the former Canadian trade diplomat Pierre Sauve
[This interview published on October 15, 2015 is translated from the German on the Internet, http://derstandard.at
. Pierre Sauve is a professor at the World Trade institute of the University of Bern. Previously he worked for the OECD. Sauve was a negotiator for his homeland Canada in the Nafta free trade agreement.]
Standard: After a standstill for years and years, one free trade agreement after another is suddenly negotiated and completed. How do you explain that?
Sauve: There isn’t one reason why trade diplomacy is picking up steam. A nostalgic need is at the bottom of this. The transatlantic agreement TTIP is doomed and will never become reality, in my opinion. The US and Europe long to be back in the time when everything negotiated together automatically became the global norm. Now both fear China dominates too much and sets the rules. Therefore they are trying to develop the global standard with the TTIP. Another reason is that the World Trade Organization WTO represents a bankrupt system.
Standard: What do you mean?
Sauve: The WTO is too democratic. Each of the 161 member countries must agree whenever a new WTO agreement is negotiated. This never works because very different countries like the US and Dschibuti sit in one room. Therefore states turn away from multilateralism. Regional agreements are sought which seems logical.
Sauve: World trade has basically changed. While finished products were primary in the past, 70% of world trade today consists of shipping parts and components. Regional value creation chains have formed in Asia, South America and Europe. Mercedes bosses don’t ask today: should we build a plant in Brazil or Argentina. They consider whether they will take Brazil or Argentina. This regionalization requires rules and order.
Standard: Is that the reason the US has concluded the world’s largest free trade agreement with eleven other Pacific Rim states.
Sauve: That is one of the reasons. The Pacific agreement is an attempt to deepen US economic relations in the region with one blow. In the past the US didn’t have a free trade agreement with Japan, Malaysia or Vietnam. Now they receive everything.” The United States wants to contain China these countries. They are building a protective shield.
All countries like Japan and Mexico joined TPP after the start of negotiations because they were afraid their businesses would remain outside. A caravan arose that makes the Pacific agreement interesting.
Standard: What do you mean?
Sauve: The agreement is a means for revising the North American Free Trade Agreement NAFTA. All three Nafta countries, the US, Canada and Mexico, are in the TPP. Nafta is 20 years old. The three countries have negotiated and eliminated tariffs. But the Pacific agreement TPP goes much further with regulations for enterprises in state ownership. More services will be liberalized.
Standard: In the US, there is great resistance against the Pacific agreement. Do you think the agreement will ever be accepted by the Congress?
Sauve: The dynamic is hard to predict. The term in office of President Barack Obama is coming to an end. Up to now his political-economic legacy in world trade was unclear. Therefore his administration is trying desperately to negotiate the Pacific agreement. The other countries want their advantages. The US must appear flexible. New Zealand presses the US to open its markets for daily products. The US is yielding in the conflict with Australia over bio-patents. The pharmaceutical branch is impacted. The US grants twelve years exclusivity to firms that discover a biological substance. Generic producers are prevented from quickly reproducing medicines. Australia finds that unacceptable and urges the conventional five year international protection for bio-patents.
Standard: Must the US change its laws?
Sauve: Yes, that is somewhat unusual. Senator Orrin Hatch who represents the state of Utah has said he will not accept the TPP. Why is that? Many pharmaceutical giants have their headquarters in Utah. Ford and the state of Michigan are also unhappy with TPP. Even the possible presidential candidate Hilary Clinton is against the agreement because she doesn’t want to frighten off the unions. In her term in office as Secretary of State, she jointly developed the strategic turn of the US toward Asia. Thus resistance rages across the two parties. A hard political struggle is imminent.
Standard: Where has the TPP broken down?
Sauve: The US and the EU are both open economic zones. Import-duties hardly exist. Investors from abroad are welcome. The real trade barriers consist in different product standards. The rules for admitting cars, cosmetics and chemicals are completely different. Can these regulations be harmonized in a free trade pact? No. I am certain of one thing. The challenge is too great on the practical plane. For example, there must be agreement on every single chemical in a lipstick. There are thousands of products. In addition, there is a political reason. Two hegemons negotiate who are not accustomed to making compromises. The US and the EU are like two proud gorillas. At the same time, concrete interests that no one will abandon are behind the thousands of different product norms.
Standard: The EU commission would object that the European automobile, chemical and metal industries want TTIP.
Sauve: Corporations want the agreement but everyone wants to keep their own rules. That will not work. That is also true for authorities. A BMW is just as safe as a Chevrolet. But the tests for proving the safety of these cars are completely different. Why is this? A whole branch of industry exists because much money can be earned with passenger car tests. This is true in many areas. The credibility of EU monitors fell to zero after the Volkswagen scandal. A US – NGO uncovered the cheating at VW. The more we learn about the scandal, the more obvious it is that people in Europe have long known about irregularities. No one intervened for political reasons. Thus the VW-scandal is a heavy blow for TTIP because it destroys the necessary trust between the guards.
Standard: The EU commission makes great efforts at saving the TTIP. A whole new system of settling investment disputes is drafted.
Sauve: Yes, the US will certainly reject that.
Standard: The European ideas sound reasonable. The EU wants smart judges to decide corporate lawsuits against states. An international commercial tribunal should be created.
Sauve: All this is very far from the way the US settled its investment disputes up to now. A smart court would mean lawyers would not be hired ad hoc as arbitrators any more. Investment jurisdiction is an enormously profitable niche. The lawyer-branch, particularly in the US, will put up a fierce resistance against losing that niche. That may be another nail in the TTIP coffin. The US doesn’t want the TTIP agreement without investment protection. US companies have no problem in suing before a national court in Germany or Austria. That is different in Rumania and Bulgaria (Andres Szigetuari, 10/15/2015).
Public services under attack by TTIP and CETA by Thomas Fritz, Corporate Europe Observatory, October 2015, 48 pp http://corporateeurope.org/sites/default/files/attachments/public-services-under-attack.pdf http://corporateeurope.org/print/2142