Cato Online Forum

The European Union and TTIP: Preliminary Observations

By John Gillingham
October 2015

For the European Commission, the executive arm of the European Union, the decision to enter the Transatlantic Trade and Investment Partnership negotiations may well prove to be a matter of survival. The seriousness of the present Euro-crisis — which more properly would be termed the European Depression — is well-enough understood to obviate any need for lengthy discussion in this brief comment. The two most relevant points for our purposes are that the current debacle has undercut the authority of the Commission — reduced it from a purported institutional brain into something more like an appendix — and that an end to the prolonged slump is not in view. The future looks bleak. Investment rates remain low because of structural rigidities built into the economy. The much-damned neo-liberalism, it seems, rather than having been foisted on Europe by Wall Street and the giant U.S. multinationals, has by-passed Europe, altogether.

Although the past practices of the European Commission deserve a generous share of the blame for the EU’s plight, a change of heart — born , perhaps, of desperation — has taken place there or, more precisely, took place there in the final years of the Barroso presidency. It would be rash to assume a similar commitment to TTIP on the part of the opportunistic current Commission President Jean-Claude Juncker. One can also reasonably doubt that this most political of animals is fully aware of the potential stakes involved in the negotiations.

Put quite simply, the adoption of TTIP, as it is presently conceived by the negotiating parties, would put the EU back onto a course of liberalization, from which it swerved in the mid-1990’s, and thereby bring it abreast of the concurrent globalization process being driven by China and the United States. Within Europe, the Single Market, something only half-complete, would become a reality. State interventionism would be sharply reduced and international competitiveness restored. Will this happen?

Much depends upon the outcome of the more advanced TPP negotiations. It is, of course, too early to posit success. At the same time, the Obama administration seems to have turned the critical corner by securing Fast-Track authority. The completion of TPP would leave Europe the odd man out on the world trade scene. Fully aware of this peril, the business communities of all twenty-eight EU member states strongly back TTIP, as do, at least for now, their governments. The latter are represented in the European Council, which has mandated the Commission to proceed with the negotiations. A third body, the European Parliament, must also approve the deal, as must perhaps (the legal situation is murky) the individual member-states.

The fate of TTIP will probably hinge less on the specifics of the trade aspects of the agreement than on the politics of the EU. Tariffs in industrial products are low. Foodstuffs — largely because of the grotesque Common Agricultural Policy written into the European Union’s founding treaty — are obviously an exception, but American farmers have over the years successively pivoted to Asia and, albeit grudgingly, learned to live with European trade discrimination. In any event, the potential economic benefits of TTIP are undisputed. They would raise GDP by about half a point in both the US and Europe.

The big stakes in the TTIP negotiations turn on the regulatory issue — “harmonization,” as it is euphemistically termed. This matter reaches beyond product standards, intellectual property, accounting methods, cultural protection, and the like. It cuts to the very heart of the EU’s political identity, as subsumed under the term “the European Social and Economic Model,” purveyed to the public as prophylaxis to “savage American capitalism.”

Its most famous monument is an enactment known as the “precautionary principle,” which, when stripped of the verbal mumbo-jumbo surrounding it, assigns the bureaucrats of Brussels authority to block the introduction of any new product or process. It was invoked most consequentially to bar the planting of GMO seed in Europe, even though not a shred of scientific evidence could be adduced to demonstrate its harmfulness.

Aware of the economically ruinous consequences of the ban, the Commission has, in recent years, struggled unsuccessfully to undo it. The catch is that, having been incorporated into the corpus of EU regulatory legislation, known as the acquis communautaire, it cannot, by definition, be repealed, but only circumvented. Though the Commission is adept at inventing extra-legal (so-called “soft”) methods of problem-solving, it must, in this instance, contend with the success of the earlier anti-GMO brainwashing. Attempts to lift or modify the ban now meet with public outcries, which can count on being echoed at a European Parliament in desperate search for a popular mandate of any kind.

It must be emphasized that dealing with Brussels is not comparable to Tokyo or Washington, capitals of mature sovereign states, which operate on the basis of constitutional principle. In its present condition the European Union is essentially dysfunctional. The European Depression has ended any hope that the European Union would evolve into a federal state; it lacks legitimacy, not to mention a democratic mandate. Prominent legal scholars doubt the wisdom of vesting a politically unaccountable body with the authority to enter an agreement as far-reaching as TTIP promises to be. There is also reason to question whether such an agreement could be properly enforced. One might also wonder whether it could actually be passed.

The evidence concerning these points is fragmentary and inconclusive. Late last year, a German organization of 27,000 called Attac, which opposes “neo-liberal globalization,” generated a flurry of anti-TTIP media activity, launched a series of public protests, and directed a successful petition campaign, which eventually brought the matter to the attention of the issue-hungry European Parliament, where a bout of angry speechifying ensued. The “chlorinated chicken” became the symbol of the larger systemic evil its opponents find represented by TTIP. The chlorine in question is a mild, utterly harmless antibacterial wash required by the FDA. The silly episode came to an end once the German-headed Social Democratic faction in the European Parliament, apparently under pressure from both the Commission and Berlin, repudiated it.

But the opposition persists. Speaking in the name of “civil society” a report compiled by the policy department of the external affairs bureaucracy of the EP registered a long list of objections because the negotiations have “been perceived as either a way to strengthen the West’s weakening grip on the world economy or as a tool to secure unfair advantages for big multinationals at the expense of citizens and consumers.” The objections concern: threats to environmental and consumer safety regulations; weakening the ban on GMOs as well as restrictions on the introduction of new chemical products; the importation of “chlorinated chickens”; the refusal to adopt EU standards of aviation emission; possible reductions in wages and workplace standards; the industrialization of agriculture; and the violation of privacy by U.S. internet providers. Doubtless some of these concerns are merited, but the fact misses the point: the objections are largely ideological and non-negotiable.

It is, in the words of the report, necessary for the European Union “to establish a viable system to guarantee appropriate regulatory convergence. The European Parliament should (it adds) propose modern, dynamic, ex-post impact systems to verify whether administrative authorities are exceeding their regulatory powers. This is essential for the TTIP, but (it concludes) would also serve a purpose beyond the confines of the current project and should become a permanent feature of an EU system of checks and balances. What this convoluted language means is that if the TTIP is actually ratified, it can, and should be, sabotaged administratively.

It is impossible to gauge the representativeness of such sentiment, but is probably also unnecessary to do so. The Commission is discredited and is far too weak to direct a pro-TTIP public relations campaign. The Council, which represents the member-states, likewise shows no eagerness to run with the ball, and because TTIP is a treaty matter, ratification must be unanimous unless, as previously, the European Union breaks its own rules. The unpredictable Parliament is a third veto point. How the scenario will play out is, at present, anyone’s guess. The odds, however, surely do not favor TTIP.

It should be noted in closing that the mega-deals in play are but one, albeit “clean,” approach to trade liberalization. The “spaghetti bowl” of free trade agreements between both the European Union and its individual member-states on the one hand, with the rest of the world on the other, is by no means yet full. What cannot be accomplished at a single stroke may well be possible over time. The European Union could well, in such a protracted process, lose its (never fully recognized) authority to represent the member-states in trade negotiations. Such a loss of power is hardly unprecedented.

The opinions expressed here are solely those of the author and do not necessarily reflect the views of the Cato Institute. This essay was prepared as part of a special Cato online forum on The Economics, Geopolitics, and Architecture of the Transatlantic Trade and Investment Partnership.

John Gillingham is a fellow at the Harvard University Center for European Studies.