5 things to watch on TTIP

Whether the EU and the US can reach a deal before the end of the Obama administration hinges on their resolution.

Negotiations for an ambitious EU-U.S. trade deal had a bumpy start this week, with Greenpeace activists blocking the entrance. This was just a blip for the 12th round of negotiations on the Transatlantic Trade and Investment Partnership (TTIP) this week in Brussels. It’s crunch time for European Commissioner for Trade Cecilia Malmström: She hopes to reach a compromise by the end of 2016, before President Barack Obama’s term ends in January 2017, and U.S. officials say they share the same goal.

Here are five potential sticking points:

1. Regulatory cooperation

Backers say harmonizing regulatory standards would allow manufacturers of products from chemicals to cars to minimize compliance costs.

“This is one of the main objectives of TTIP,” Malmström said Monday.

Critics, however, are concerned that such an alignment “bears the risk of introducing U.S. regulatory standards that could lower our level of consumer protection,” said Johannes Kleis from the European Consumer Organization BEUC.

Malmström, for her part, said, “no EU trade agreement will ever lower the level of protection of consumers or food safety or of the environment.”

To keep this promise, her negotiators need to convince the U.S. to accept a more “precautionary” approach to assess the risk of pesticides, hormones or other potentially harmful substances in food or chemical products.

While EU legislation requires producers to prove that all substances in their products are safe before they get market approval, the U.S. does not have such a legal obligation. Critics say the U.S. applies exactly the opposite principle — products get approved unless it is proven that their ingredients can do harm.

2. Investor-state arbitration

One of the most controversial clauses would allow foreign investors to sue governments over regulations if they allegedly harm their investments. This has been a part of over 3,000 international agreements since the 1950s, with almost half of them including EU member countries.

The European Commission took this investor-state dispute settlement, or ISDS, off the negotiating table in January 2014 amid growing opposition in Europe. Then, the European Parliament demanded last July that ISDS be replaced “with a new system for resolving disputes between investors and states” — otherwise, it would reject the whole deal when it is time for ratification.

In a bid to appease critics, Malmström revamped the investor court system in September, turning it into a permanent dispute settlement court with 15 independent judges, an appellate mechanism of six judges, and more transparent procedures.

This week, negotiators will for the first time exchange their views on the new proposal, but there are signs that the U.S. is not very enthusiastic.

For Malmström, this is an essential point: If she can’t convince the U.S. to accept her court idea, the whole plan risks falling apart and drawing even more criticism of TTIP. Some say it isn’t worth killing the deal, and call for the arbitration system to be carved out completely.

3. Buy (not just) American

“This is another potential deal breaker,” said Bernd Lange, chair of the Parliament’s international trade committee and a member of the Socialist & Democrats party.

At issue is the opening of the world’s two largest public contract markets to each other’s companies.

The EU, which says it is already very much open to U.S. firms, is pressuring Washington to lower restrictions, most notably the Buy American Act. The law requires the U.S. government to, in most cases, prefer American products or offers whenever they buy equipment or award a contract.

“This is one of the major benefits we could get out of TTIP,” said Markus Beyrer, director-general of Business Europe, a major business lobby. “We need a comprehensive agreement giving both sides new market opportunities.”

Although the issue is not on the table this week, both sides will exchange offers next Monday and discuss them during follow-up talks in Washington in two weeks. It will be a tough negotiation.

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“We have never expected that the Buy American Act would be abolished, especially not in an election year,” Malmström told POLITICO last Thursday. “But there are ways to make waivers and exceptions, and this is what we hope we can achieve.”

Another problem: Even if the U.S. federal government were to open its procurement market, this would not include contracts issued by the 50 U.S. states.

Expanding the commitments to the state level “is something where we are very much insisting [on],” a Commission source said.

The American Chamber of Commerce to the EU is backing the Commission’s demand.

“Ideally, the state level should be included at the negotiation table to open up the whole U.S. public procurement market,” said Hendrik Bourgeois from the business lobby. “However, enlarging the negotiations to all U.S. states will be a very difficult step to undertake.”

4. Financial services

Defining common standards for banks, traders and rating agencies is another priority of the EU.

“It would be good if the EU and the U.S. could set joint standards, to raise the bar globally,” said Marietje Schaake, an MEP from the Alliance of Liberals and Democrats. “International cooperation and oversight are crucial to avoid a future financial crisis.”

At the last TTIP round in October, the U.S. had been reluctant to approach financial services, arguing TTIP would not be the right format. Ahead of this round, U.S. officials declined to comment.

The only point on which both sides seem to agree so far is a “prudential carve-out” provision, which would allow governments to protect their financial systems during times of crisis.

5. Protecting (European) food names

These so-called geographical indications – for example, Parma ham or Roquefort cheese – are a top issue for the EU. It maintains U.S. companies should be forbidden to sell imitations of such food under the same name. But so far Washington has shown little interest to give in.

“I’m afraid we are still not there,” the Commission source said. “We will still need to have a lot of discussions with the United States.”

If the two sides can’t agree on this point, it would further jeopardize the ratification of a finalized TTIP deal: The Greek government has already threatened to veto a different EU trade deal with Canada as long as it does not protect its Feta cheese from foreign imitations.

With these five major points unsolved, and differences remaining in some others as well, the goal of concluding negotiations in 2016 seems ambitious — unless both sides manage to drastically speed up the negotiations.

“By the end of this round, or shortly thereafter, we anticipate having specific agreement language under discussion in nearly all areas,” said Trevor Kincaid, a spokesperson for the U.S. Trade Representative.

The Commission said it wants to have compromises in place by the end of July, with only some minor questions remaining open.

“We are still very far away from an agreement,” Lange said. “In the most sensitive areas, nothing has happened. The EU has presented its proposals, it’s now the U.S.’s turn to come forward so that we can make a deal.”