Vastine in International Trade Daily; article on the EU’s leaked services offer reprinted

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June 30 — The leaked draft European Union services offer in the Transatlantic Trade and Investment Partnership (TTIP) negotiations with the U.S. could pose a major complication, as the two sides are using significantly different approaches, according to U.S. and EU sources who spoke with Bloomberg BNA July 11.

Robert Vastine, senior industry fellow at the McDonough School of Business at Georgetown University, said that although the initial focus was on the exclusion of financial services from the broader services offer in the leaked draft (116 ITD, 6/17/14), the EU’s use of a hybrid approach to scheduling commitments, rather than the negative-list approach favored by the U.S., poses more significant challenges.

Hosuk Lee-Makiyama, director of the European Centre for International Political Economy (ECIPE), said that both sides are being very cautious with their first offers in the TTIP and that it “can’t be precluded” that the EU will eventually move to the negative-list approach.

Hybrid, Negative-List Scheduling.

The hybrid approach allows a country to offer schedules for liberalization—reductions in tariffs and other measures that restrict trade—on a positive choice of subsectors and modes of supply, combined with a negative listing of limitations or exclusions that apply to these positive choices.

A negative-list approach entails all subsectors and modes of supply being subject to liberalization except those specifically cited on the negative list.

In real terms, the negative-list approach is more liberalizing than the hybrid approach, Lee-Makiyama said, noting that the stated goal of the two sides on services is to achieve the highest level of liberalization that each side has achieved in trade agreements to date, while also seeking to achieve new market access.

Vastine said that the EU’s use of a hybrid approach in its offer to the U.S. is disappointing because the EU agreed to a negative-list approach in the Canada-European Union Comprehensive Economic and Trade Agreement, and the EU will use a negative list in the free trade agreement being negotiated with Japan.

EU Approach Based on TISA Offer.

The EU’s hybrid approach is based on its offer in the ongoing Trade in Services Agreement (TISA) talks, Vastine said. The TISA is being negotiated in Geneva, although outside of the WTO, among more than 50 participant countries that aim to update the 1995 General Agreement on Trade in Services to reflect the many new issues in services trade, such as data flows, that the 23 TISA participants have negotiated in bilateral agreements.

“The EU insisted on the hybrid approach in TISA to make it a more appealing agreement for China and other BRICs to join later,” Vastine said, referring to the acronym for Brazil, Russia, India and China. “It is pointless to insist on the TISA hybrid approach for TTIP, which does not involve China.”

Vastine, who was president of the Coalition of Services Industries and is a major proponent of the TISA talks, said that if the EU persists with this offer, it would “throw sand in the gears” of the negotiations because the hybrid and negative-list approaches are so far apart it is as if the two sides are speaking different languages.

The EU’s exclusion of financial services from the initial draft offer, however, is likely a bargaining position that can be worked out in the course of the negotiations, Vastine said.

EU Proceeding with Caution.

Lee-Makiyama said that at this stage the EU is essentially saying it will not offer the U.S. anything more than was offered in the TISA negotiations, and the U.S. initial offer likely largely mirrors the services offer made in the U.S.-Korea Free Trade Agreement, which is known as KORUS.

These initial offers reflect a reciprocal sense of caution and distrust, Lee-Makiyama said, but he cautioned that based on his experience as an official dealing with EU services negotiations, many developments can come up over the course of just a few days.

The leaked draft text was circulated May 26 for comments that were due by June 30. It is unknown whether this is the offer that has been made to the U.S. in advance of the sixth round of talks that are scheduled to begin July 14 in Brussels.

“What has been leaking is not necessarily what is on the table at the moment,” Lee-Makiyama said. “People need to be very cautious of that.”

While the EU negotiated services on a negative-list basis with Canada, he said, it was a painful experience because of the complexity and work involved in consolidating all of the commitments from the member states into a services schedule.

“But the thing is that once you go from a positive to a negative list—once you make that transition—the work is done, so then it just becomes a question of copying and pasting,” he said. “But because of the experience with Canada there is a certain resistance among the member states and at the [European] Commission level to a negative list.”

Lee-Makiyama noted, moreover, that there is added caution associated with a negative list given the development of audiovisual technologies and the internet, as well as some associated classification issues. Because everything is liberalized except what is on the negative list, one does not know what concessions one is making based on future technological developments.

With regard to Japan, the ECIPE director noted that it always negotiates on a negative-list basis with countries that are members of the Organization Economic Cooperation and Development (OECD), and on a positive-list basis with developing countries. It would be very peculiar for the EU to insist on a positive-list with Japan, Lee-Makiyama said.

He noted that with regard to the TTIP, the EU is more interested than the U.S. in having a standard-setting agreement, hence the pressure will be on the EU to move from the hybrid to the negative list.

Financial Services Exclusion.

The exclusion of financial services from the broader EU services offer contained in the leaked draft text stems from strong resistance from the U.S. to inclusion in the TTIP of regulatory cooperation in this area. The U.S. wants to limit the scope of financial services in the TTIP to market access and to continue to pursue regulatory cooperation in other forums.

Lee-Makiyama noted that leaked draft text is essentially the EU’s TISA offer minus the financial services section. Vastine said that this exclusion of financial services is essentially a bargaining position by the EU that can be resolved through negotiations.

Sources close to the TTIP negotiations have told Bloomberg BNA that the administration does not want to risk having to make changes to the Dodd-Frank Wall Street Reform and Consumer Protection Act because of the U.S.-EU trade agreement.

A leaked text containing the EU’s proposals concerning regulatory cooperation on financial services calls for parties with problems resulting from regulatory divergences to be able to resolve the matter by requesting a working group for mediation. The parties would agree on detailed guidelines for technical mediation, the proposal said, adding that access by the parties to the dispute settlement mechanism established under the TTIP was also possible with respect to regulatory cooperation in financial services.

Key Development: EU leaked draft offer does not use negative-list approach advocated by U.S., excludes financial services.

By Len Bracken

To contact the reporter on this story: Len Bracken

To contact the editor responsible for this story: Jerome Ashton at jashton@bna.com (new window)

The EU’s initial draft services offer can be found on the website of Associated Whistleblowing Press here (new window). 

Reproduced with permission from International Trade Daily, 134 ITD (July 14, 2014). Copyright 2014 by The Bureau of National Affairs, Inc. (800-372-1033 (new window)) <http://www.bna.com (new window)>

Investment Partnership (TTIP)