Top US and European trade negotiators met this week in Washington and took stock on the progress of the Transatlantic Trade and Investment Partnership (TTIP) negotiations. The next formal round of talks, the fourth, will be held for a week (starting March 10) in Brussels. There are the ritualistic calls that efforts need to be redoubled, and the usual platitudes about the joint gains that can be accrued.
Yet behind the scenes, negotiations appear to have lost their momentum. There are two reasons: economics and politics. The agreement is looking well beyond tariff reductions, to include the removal of administrative barriers to trade raw materials and energy and the harmonization of regulations across a range of industries.
The reduction of tariff barriers may be the least difficult challenge. Abolishing other restrictions on trade will prove more difficult. The EU wants the US to commit to getting rid of restrictions on gas and oil exports. The US appears to be moving slowly in this direction, but a domestic consensus remains elusive.
Harmonizing regulations is perhaps the thorniest issue. The US presses for its agricultural products, while Europe defends its regulation on hormone treated beef and genetically-modified foodstuffs. To cast the issue into heavy regulation Europe versus light regulation in the US does not do the issue justice. In some areas, the US regulation is the more onerous.
Ultimately, if the talks falter, it most likely won't be due to economics, but to politics. First, the odds have shifted against Obama getting Trade Promotion Authority (TPA), without which trade agreements are next to impossible. As we noted previously, this is the same thing that is souring the trade agreement with Asia (Trans-Pacific Partnership). Just like the center-left toppled their own prime minister in Italy, so too is the main obstacle of the TPA coming from Obama's own party. Senate Majority Leader Reid's lack of support for the measure just about kills it this side of the November congressional elections. One third of the Senate and the entire House face the electorate in November. After the November election, Obama's lame-duck condition increases and a second-term president frequently loses clout and ability to negotiate attention shifts to the wide-open presidential election in 2016.
In Europe, the political climate also is not conducive for a large trade deal. The populism from the right appears to be on the ascent. This is not simply the story of peripheral countries who are tired of what many see as Brussels or Berlin inspired austerity, such as Greece, but is has in the core as well, such as France, Austria and The Netherlands. It is evident with the UKIP. The same forces in Germany are likely to be energized by the German Constitutional Court that cast dispersions on the ECB's OMT program that has not even been operationalized. The strength of the populist right that is more nationalistic than pro-Europe, is likely to be manifest in the May EU Parliamentary elections.
In a word, the TTIP, like the TPP, may flounder because of the lack of sufficient will. Of the numerous challenges that America and Europe face, there are many larger and more pressing concerns. While the tactics are understandable, what may be sacrificed is the long game strategy.