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U.S. Advances High-Tech Talks, Sees Hope for Trade Facilitation Pact as FTA Negotiations Continue

Wednesday, November 12, 2014
Sandler, Travis & Rosenberg Trade Report

A flurry of meetings between leaders, senior officials and negotiators in recent weeks has breathed new life into efforts to further liberalize global trade. The U.S. and China reached a deal paving the way for dozens of countries to eliminate tariffs on more than 200 high-tech products, and there are hints that Washington and New Delhi may be close to breaking an impasse that has held up implementation of a December 2013 agreement to streamline trade among World Trade Organization members. The U.S. has also claimed further progress toward opening Japan’s market for agricultural products and automobiles, which could set the stage for a rapid conclusion of the long-running Trans-Pacific Partnership negotiations, and is looking for a “fresh start” on talks on the Transatlantic Trade and Investment Partnership with a new slate of European Union leaders.

Trade Facilitation. This past summer, India blocked the adoption of a protocol necessary for implementing the Trade Facilitation Agreement that WTO members concluded in December 2013 after more than a decade of Doha Round talks. India has insisted that WTO members grant it authority to exceed WTO limits on subsidies aimed at increasing the country’s food security before it will allow the TFA to move forward, whereas WTO members last December gave themselves four years to find a solution to this issue.

Over the past few months there has been little to no sign of compromise, yielding what WTO Director-General Roberto Azevêdo has called “the most serious crisis the WTO has faced.” This situation has led many observers to again call into question the WTO’s future as a forum for negotiating trade liberalization agreements. The TFA “not being implemented by a multilateral system has broad implications for the multilateral system itself,” said U.S. Trade Representative Mike Froman. “We have failed for 20 years and we can’t fail for another 20 years, in terms of negotiations,” added Azevêdo.

The impasse has paralyzed the WTO’s work on other issues as well. Last December’s ministerial meeting approving the TFA also mandated that WTO members develop by the end of 2014 a work plan to advance Doha Round issues not addressed at that meeting, but there is now virtually no likelihood of that happening. While some members have called for work in other areas to go forward, others say that is impossible because, as Deputy USTR Michael Punke put it, “trust has been shattered, and business as usual in such circumstances is impossible.” The chairs of the WTO negotiating committees on agriculture and non-agricultural market access said in late September that those talks have come to a standstill and there is no apparent way forward.

However, U.S. and Indian trade officials recently renewed discussions on possible ways forward, and President Obama expressed confidence Nov. 11 that “there’s an opportunity for us to resolve (outstanding issues) fairly soon.” At least one source speculated that an announcement could come at a Nov. 15-16 summit of G-20 leaders in Australia. In the meantime, there has been increasing discussion of allowing those countries that are willing to implement the TFA to do so while leaving open the possibility of a full multilateral agreement at some point in the future.

Information Technology. One bright spot for the WTO has been a recent breakthrough in an effort to expand a 1996 agreement that currently provides for duty-free trade of about 180 high-tech goods between dozens of signatory countries. Negotiations on broadening the Information Technology Agreement were suspended a year ago after China refused to narrow a list of sensitive products it wanted to exclude from an expanded agreement. On Nov. 10, however, USTR Froman announced that the U.S. and China had reached a deal that should “pave the way for the resumption of  ITA negotiations in Geneva and their swift conclusion.”

A USTR fact sheet indicates that under this deal tariffs will be eliminated on global trade in more than 200 tariff lines, including medical equipment, GPS devices, video game consoles, printer ink cartridges, video cameras, static converters and inductors, loudspeakers, software media (e.g., solid state drives), next generation semiconductors, point-of-sale cards to download software and games, and various information and communications technology testing instruments. This suggests that Beijing was successful in removing several dozen items from the original list of goods proposed to be added to the ITA. Press reports indicate that the two sides also agreed to phase out most tariffs on covered products within five years, although this and all other aspects of the U.S.-China deal will still have to be approved by other ITA participants.

TPP. Negotiations on the Trans-Pacific Partnership between the U.S. and nearly a dozen other Pacific Rim countries have seen some recent progress as well. While the goal of announcing a basic agreement at the annual Asia-Pacific Economic Cooperation forum leaders’ summit in China this week was not met, TPP member country trade ministers meeting just prior to that gathering said that as a result of work over the past few months the number of outstanding issues is now limited, the pace of progress has accelerated and the conclusion of the negotiations is “coming into focus.” Ministers also said they have developed a joint work plan to develop mutually acceptable outcomes on the remaining challenges, which include market access (for goods, services, investment, financial services, temporary entry of business persons and government procurement), intellectual property, state-owned enterprises, the environment and investment.

The ministers cautioned, however, that “sensitive and challenging issues remain that will require our continued involvement.” A subsequent statement from APEC leaders added that concluding the TPP will be a “top priority” but made no mention of particular trouble spots, set no deadline for wrapping up an agreement and gave no indication as to when the next round of negotiations will be held.

One likely reason for this uncertainty is that the U.S. and Japan have still not resolved their differences on market access for automobiles and agricultural products. USTR has blamed the lack of progress in bilateral negotiations in recent months on Japan’s failure to submit an offer that reflects “the level of ambition that all TPP countries agreed to attain when they entered negotiations.” However, more recent talks have reportedly been marked by a greater willingness to compromise on both sides. Officials say these discussions have seen “definite results” while acknowledging that the most difficult issues have yet to be resolved.

TTIP. Negotiations on the Transatlantic Trade and Investment Partnership, meanwhile, are continuing to move forward at a decidedly measured pace. The seventh round of talks on the proposed free trade agreement between the U.S. and the EU was held in early October, and the next round could take place in early December following a meeting between USTR Froman and new EU Trade Commissioner Cecilia Malmstrom. EU officials said following the most recent round that negotiations have now reached a point where “discussions are based on specific textual proposals,” while U.S. officials have expressed interest in a “fresh start” to the talks with new EU commissioners in place.

At the same time, public debate over some of TTIP’s most challenging issues has grown increasingly acrimonious. The EU suspended talks on the controversial topic of investor-state dispute settlement in January and is continuing to sort through the tens of thousands of public comments that have been submitted since. Campaigns against ISDS have ramped up in Europe, and a growing number of lawmakers there are taking definitive stands against it. The U.S. government, on the other hand, has made it clear that it wants ISDS to be included. USTR Froman said recently that “it’s hard to imagine a high-standard agreement that doesn’t have the high standard of investment protections as well.”

Many see the treatment of ISDS in the EU’s recently concluded FTA with Canada as a key test. The EU claims that this agreement improves and reforms ISDS by, among other things, providing that “firms will not be able to sue governments simply because profits might be affected” and requiring companies to demonstrate that the FTA’s terms had been breached in a specific way. Opponents, however, want to reopen the FTA to remove ISDS entirely, which former EU Trade Commissioner Karel De Gucht said would have the effect of not only “killing” the EU-Canada FTA but also diminishing prospects for TTIP. Malmstrom, De Gucht’s successor, also opposes removing ISDS from the Canada FTA because doing so “would open up other chapters and the deal would risk falling.” However, at one point Malmstrom held open the possibility of excluding ISDS from TTIP given the “abuses” of ISDS that have occurred in the past, and new European Commission President Jean-Claude Juncker has said a decision will await further analysis of public comments.

There are also concerns, particularly in Europe, that under the anticipated regulatory cooperation provisions of TTIP the EU could be forced to water down regulations designed to protect the environment, health, safety, consumers, data privacy or other public policy goals. EU officials continue to reject that idea, emphasizing that the bloc’s standards will not be lowered and that talks are focused instead on ways that regulators can avoid unnecessary duplication of effort and cost by sharing their work. Lead EU negotiator Ignacio Garcia Bercero said the EU considers “the regulatory part of TTIP to have the potential to deliver the most benefits” but that it is also “the most challenging part of these negotiations because it is highly technical and requires the most innovative thinking.” Talks on regulatory issues at the most recent round of TTIP negotiations reportedly focused on energy and raw materials, customs and trade facilitation, intellectual property, and small and medium-sized enterprises.

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