GED Mini-Series: Lessons Learned from TTIP

In a survey the GED team commissioned in February, only about half of Germans said they had a positive view of free trade – down from almost 90% two years earlier. This is not a phenomenon specific to Germany, all over the world free trade – as a symbol of globalisation – is viewed increasingly negatively. The success of populist isolationist politicians in many countries as well as the result of the Brexit referendum points in the same direction.

Yet our economic model depends on international trade in Germany maybe even more so, than in many other countries. Every fourth job depends on international trade, two thirds of the turnover of German companies is generated outside Germany’s borders. More open economies feature higher economic growth rates, more innovation, better social systems and lower debt levels. Free trade has strong beneficial effects and has become indispensable for our economic model. Without free trade, we would not only be worse off, we would also struggle to finance the welfare state and many other dearly held achievements.

However, it would be wrong to dismiss all criticisms that have been addressed to free trade and globalisation as unfounded. While some criticisms clearly are exaggerated or plainly wrong, others are fair and deserve to be taken into account. If we want to overcome the resistance to globalisation, trade must become more inclusive, the benefits need to be distributed more evenly and trade negotiations need to become more transparent. In our view, the answer to many problems is not less globalisation, but better globalisation. In this mini-series, the GED team is exploring some ideas on how shortcomings of present trade policies can be addressed, in order to ensure better outcomes.

Part 1: How to Give Democratic Institutions a Stronger Voice in Trade Negotiations

Two criticisms which have had a particularly strong impact on the public perception of TTIP were the lack of transparency and the limited role of democratically elected institutions. The first of these criticisms had to do with the fact that the content of the trade negotiations was not public. Initially, only the final text of the contract would be made publically available. This has been severely criticised because it implied limited possibilities for an informed public discourse about the content of the trade deal.

Complete Transparency for Trade Negotiations is Not Desirable, But Complete Opacity is Detrimental

This criticism is however not entirely fair. In international law, a trade contract is no difference from any other kind of international treaty. It is negotiated between two or multiple governments (or the EU, as the competency for trade policy has long been delegated to the supranational level). The content of the negotiation is normally not public – and generally for good reason. Many international treaties touch very sensitive and complex issues. Think of nuclear disarmament talks or settling a border dispute. Having the public look over the negotiator’s shoulder would limit their ability to engage in trade-offs. This is especially true in the case of trade negotiations, where negotiators might be willing to make a concession in one specific area, in exchange for the possibility to obtain a concession form the other side in a different area. A fair deal will require both sides to compromise – which can be achieved much more easily, if negotiators can make use of a good room of manoeuvre, without an army of lobbyists breathing down their neck.

This being said, it was probably wrong, not to provide any information at all, as was policy at the beginning of the negotiations. It was a step in the right direction, that the EU Commission made the mandate for the negotiations public and published regular reports on the progress achieved after the negotiation rounds. This communication policy should have been adopted early on. Complete transparency is not needed while negotiations are going on, but some informing of the public about the key points in the negotiation helps to build an informed discourse about the treaty. Without such a communication strategy, the fear mongers have an easy play as their game of putting out (potentially unfounded) fears cannot be called. Lesson learned: Provide the public with the cornerstones of the debate, but maintain some room for discretion in the trade negotiations.

A New Role of Legislatures in Deep Trade Deals

The second criticism about the limited role of democratically elected institutions in the negotiation process weighs more heavily. Again, as with any treaty under international law, the relevant legislature can only approve or reject the treaty. This might be fair practice with most international treaties, as they mostly govern external affairs – traditionally the domain of the executive branch, not the legislature – they do not interfere with the laws governing the internal order, for which the legislature is by definition responsible. But modern trade deals are different: They do interfere with many internal laws.

In the past, for most of the GATT rounds, trade deals used to be about lowering tariffs and abolishing trade quotas. Having such trade deals negotiated by representatives of the executive branch was acceptable, because the interference with the domestic legal order was minimal. TTIP, however, together with CETA are examples of a new generation of trade contracts. Since tariffs are already low, they are much less about lowering tariffs and more about abolishing non-tariff barriers to trade (NTBs). NTBs mostly arise because of differences in regulation. American cars for example are legally required to have fixed side mirrors, while in the EU carmakers are required to make them moveable. Such product regulations are manifold. If, say, a German carmaker wants to export a car to the US, he will have to produce a different variety for the US market. This is of course costly. In a world where tariffs are low – the average tariff between the US and the EU is just about 3 percent – the most important gains come from abolishing NTBs. While the above example of side mirrors is relatively trivial, this sometimes touches very politically sensitive areas: With agricultural products for example, the EU has established the precautionary principle, i.e. any new fertiliser or other product being used in production has to be proved to be harmless before its use is authorised. In the US, the use of new products is permitted, until harmful effects have been proven. Thus, through regulatory cooperation, modern trade deals interfere with the domestic legal order, in many cases in a trivial way, but in some cases quite substantially. Giving the legislature just the option to either approve or reject such a treaty, without any option of modifying it, does not do its constitutional role of designing laws and regulation in the interest of the public justice. New roles for parliaments will therefore have to be found in the case of trade deals with a strong regulatory cooperation.

What would such a role look like? If legislatures are only implicated at the very end of the negotiation period, the options can only be rejected or accepted. Re-opening negotiations because one of the many parliaments involved (28 national parliament plus the European Parliament and the US Congress) has an objection – or more probably many having many different objections is indeed rather unpractical. The solution thus has to be to involve the legislature before the end of the negotiation of the treaty, when the text can still be modified. Two models of doing this are conceivable:

• Inverse Hierarchy: A radical approach would be to invert the hierarchy between the legislature and the trade negotiators. Rather than the latter being the master of the negotiations, disposing of the right to engage in any trade-off they deem acceptable, the legislature or a part of it would dispose of the right to steer the negotiations politically. Less abstractly, say, the trade committee of the European Parliament could be the official negotiating party from the EU side. The trade experts of the European Commission presently at the negotiation table would be reduced to a supportive role, thus still using their technical expertise. The political decisions, which compromises to accept and which ones to refuse would lie with elected parliamentarians. The trade committee has enough specialised knowledge to negotiate a trade deal effectively, especially when supported by an efficient bureaucracy. The MEPs in the trade committee are also embedded enough in the structures of the parliament (though their parties, previous committee work, etc.) to know for which trade-offs they would be able to obtain a majority when the final text is voted on by the plenary of the European Parliament (and, in the case of the mixed treaty, the national parliaments). Thus, a trade deal negotiated by such a delegation would have a much better chance of eventually passing, because potential concerns were taken into account early on. Another advantage is that parliamentarians could no longer hide behind their ignorance. TTIP has been severely criticised by MEPs and other parliamentarians before they even knew the precise content. If they not only knew the content early on, but also had influence on it, they would be confined to a much more supportive role in the process of obtaining public support for a trade deal. A one-sided debate, as was the TTIP debate to a large extent, could thus be avoided. Furthermore, any unavoidable or even desirable interference of trade deals with the domestic regulatory order would not be democratically questionable since the legislature participated in the harmonisation process. Such a radical approach would however be in contradiction to the tradition in international law that treaties are negotiated by the government or its representatives and not every government will want to relinquish this privilege to the legislature.
• Mixed Approach: That is why a mixed approach could be more acceptable. In this case, the hierarchy between the legislature and the government negotiators would not be reversed but levelled. There would be a joint delegation composed of representatives of the executive branch and the legislature of equal rank, negotiating the trade deal together. The traditional prerogative of the executive branch to represent a country (or country bloc in the case of the EU) externally would thus not be abolished, as the executive branch would still play an important part in the negotiation delegation. But the fact that trade negotiations interfere with traditional prerogatives of the legislature – to pass laws and regulations – would also be taken into account. The advantages of the first approach (political control over trade-offs, higher probability of passing and ownership of politicians in the legislature) would still persist.

Conclusion

If future deep trade deals were negotiated in such a way, this would change the public perception of these treaties. The fact that the actual negotiations are not completely public would be easier to accept, since elected – and hence accountable – politicians would be at the negotiation table. Additional benefits would be:

• A higher democratic legitimacy for regulatory cooperation. While regulatory cooperation is crucial for future trade deals to yield economic benefits, it is right that this should mean hollowing out the prerogatives of the legislature through the backdoor. Bringing the legislature to the negotiation table, would mitigate this problem.
• A higher chance of trade deals being passed by the relevant legislature(s). Presently, with the legislatures having no role in the negotiation of trade deals and only having the option to accept or reject them at the very end of the process, there is a quite high chance that after years of negotiations, the trade deal will be rejected and all will have been in vain. If the legislature is involved early on, obstacles can be avoided and a much higher chance of actually ratifying the trade deal will emerge.

Stronger political advocacy for a trade deal: The TTIP debate in many cases was largely dominated by its critics. Few politicians were willing to invest political capital to defend an unpopular deal publically in which they had no role. If they had a role in the negotiation and hence the ability to shape the deal according to their ideas, they would be much more likely to actively promote it. This would mean a more equilibrated and informed public debate about trade deals.