Strategic Communications

SNAPSHOT

European Elections 2014 & International Trade Negotiations

3 December 2013 INTRODUCTION In a series of snapshots, FTI Consulting is looking into different aspects of the elections and institutional changes to shed light on how this will influence our work. The third snapshot of this series examines how the elections and the changes in the European Commission could impact the EUs ongoing trade negotiations. Institutional reorganization and its implications
Trade negotiations are increasingly politicised and receive a lot of public attention. Gone are the times where negotiations were only carried out by the European Commission. Today many players are actively involved ranging from civil society organisations, industry associations and in particular the European Parliament (EP). The Lisbon Treaty increased the powers of the EP in trade negotiations. It now has to give consent to trade agreements and has the right to be regularly informed about the negotiation status by the Commission. The MEPs use their new influence as illustrated by the rejection of the Counterfeiting Agreement (ACTA) or their involvement in the FTA with Colombia and Peru, which led to the inclusion of labour rights. Consequently the composition of the new Parliament and in particular of the Trade Committee (INTA) will impact future trade negotiations. In the run-up towards the elections, some of the issues in the FTAs could be leveraged in the election campaigns. Given the economic crisis, protectionist statements could resonate well among the electorate. A concrete example of how the election can impact trade agreements, concerns the Economic Partnership Agreement (EPA) with Ghana. The EPA was concluded on a provisional basis in 2007, granting Ghana full access to the EU market. However, if the agreement is not signed and ratified by October 2014, the provisional arrangement will expire to the detriment of Ghanas exports. Signature by the EU requires approval by the EP, whose work is suspended between April and August 2014 due to the elections. It will therefore be a tremendous challenge for Ghana to meet the deadline.
2007 2008 - 2012 2013 2014 2015

Trans-Atlantic Trade and Investment Agreement EU-Japan Free Trade Agreement EU-India Free Trade Agreement EU-Thailand Free Trade Agreement

Trans-Atlantic Trade and Investment Agreement

The Trans-Atlantic Trade and Investment Partnership (TTIP) is conceived to be the most comprehensive trade agreement so far, covering issues such as regulatory cooperation, public procurement and investment protection. After the official launch of the negotiations in June 2013, two rounds took place in July and November and the third round is scheduled for December 2013. A political agreement for TTIP is aimed to be finalised by the end of 2014. Considering the breadth of the negotiations, TTIP is extremely ambitious, and therefore the parties follow a tight negotiation schedule with one round of negotiations at least every second month. TTIP is backed by a very strong political commitment on both sides. Despite some complications from the National Security Agency (NSA) surveillance of European leaders and the French insistence to exclude audio-visual services from the scope of the negotiations, the two parties press on, demonstrating strong determination to come to an agreement quickly. The end of 2014 is a crucial time for the negotiations and reaching some form of agreement is paramount if all parties wish to keep up the political momentum. The deal has already had many obstacles thrown in its path, including the U.S government shut-down and the NSA scandal. Therefore, a change in the European Commission only adds to the political uncertainty surrounding a tentative agreement. Furthermore, even if the EP has expressed its general support for TTIP in two non-legislative resolutions, its opinions have become more vocal and politicised approaching election time. An example of this is with the Parliaments president, Martin Schulz, who argued to stall the talks due to the NSA spying scandal, using his exposure as the Social Democrats candidate for Commission presidency. Indeed, Martin Schultzs comments have only illustrated the democratic interest MEPs are taking on the negotiations, with data protection unsurprisingly receiving particular attention after the spying claims. Today, an important share of the public thinks that the TTIP negotiations should be suspended, as shown in a study conducted by FTI Consulting in October 2013 among 1,500 adults in six EU Member States.

Free trade agenda a top priority

In its Communication Global Europe: Competing in the World (2006), the Commission set out that trade policy can contribute to creating growth and jobs in Europe. It is thus a key priority for the EU to open up market opportunities for European business and to bring healthier competition by negotiating new FTAs with key countries, regardless of political changes. Below is an overview of the most important on-going free trade negotiations with the US, Japan, India and Thailand, including further details concerning political processes in the EU.

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New Commission

New Parliament

European Elections 2014 & International Trade Negotiations

TTIP should be stalled because of the data surveillance issue:

12% 15% 38% 35%

Strongly agree Slightly agree Slightly disagree Strongly disagree

Given the fact that it is for the first time the EU is venturing to sign such an agreement with a large emerging economy (touching 1.7 billion people on both sides), the ratification could bring about a heated debate in the EP. In the face of the closing window of opportunity after a year of lost momentum, a proactive political leadership is needed more than ever. The recent resistance by India or China to an ambitious outcome on trade facilitation in Bali suggests that large emerging economies remain dilatory as regards FTAs.

The strong resonance of the data issue could thus be leveraged in the election campaigns, increasing the pressure on the Commission to negotiate hard with its US counterparts.

EU-Japan Free Trade Agreement

Following the political talks in May 2011 and the joint scoping exercise conducted on the level of ambition for a future FTA, the negotiations were finally launched in March 2013. So far three rounds were held between April and October this year, followed by a high-level summit in Tokyo in November, bringing new political momentum by reiterating the commitment to the earliest possible conclusion of the agreement. Given the already high level of liberalisation between the two countries, the negotiations are concentrated on certain sensitive areas, non-tariff barriers, standards and the public procurement sector. Due to strong pressure from France and Italy as well as the automotive sector, the EU has reserved the right to withdraw from the negotiations after one year if Japan does not live up to its initial commitments to remove all negotiated non-tariff barriers and included a safeguard clause in the trade pact to protect European carmakers. Japan and the EU have set no specific deadline for their free trade talks. In the face of the EU-Republic of Korea FTA concluded already in 2011, Japan is quite keen on striking a deal with the EU. Even though the negotiations seem to be passing quite well, it could take several years before the final agreement is reached. For instance, it took three-and-a-half years to reach an agreement with South Korea. It will therefore be the new European Commission concluding the EU-Japan FTA negotiations as talks are expected to wrap up in 2015/2016. The set-up of the new INTA Committee will therefore have a decisive role in the ratification process, but also the Delegation for Relations with Japan one of the longest established and traditionally influential delegation in the EP might have an influence on the Parliamentary debate.

EU-Thailand Free Trade Agreement

After the FTA negotiations between the EU and the Association of Southeast Asian Nations (ASEAN) had come to a standstill in 2009, the EU decided to pursue further talks with individual ASEAN countries. Thailand started bilateral negotiations with the EU only in March 2013, and the second round of talks took place in Bangkok in September 2013. Following the reform of the EUs Generalised Scheme of Preferences (2014/2015), Thailand loses its GSP status at the end of 2013, entering the transition period from January till December 2014 as a GSP country. However, already in this period it will have to pay 24% tariff on the exports of tuna products, of which Thailand is among the worlds largest producers, making it a very sensitive product. Therefore, the Thai government, pressed by local producers, took the FTA negotiations as a compensation for the loss of the preferential status, and has significantly sped up the negotiations. However, strong political will on the Thai side is cooled down by the strong opposition of a substantial number of Members of the EP representing tuna producing countries such as Spain, France, Italy or Portugal. Despite that, we expect the conclusion of the FTA by the end of 2014 at earliest (given the European elections) or in 2015 (before establishing the ASEAN Economic Community), even though tuna products might be declared as sensitive (as in the case of the EU-Singapore FTA). Again, it will be up to the new European Commission and Parliament to finalise these negotiations.

Conclusions
After the failure to conclude the Association Agreement with Ukraine, the EU is under a lot of pressure to make substantial progress with the negotiations mentioned above. Consequently, the negotiations will be under political spotlight in the run-up towards the elections. It will be essential to maintain an open and factual debate on the benefits and political sensitive aspects of the trade agreements in order to prevent sensationalist arguments dominating the debate.

EU-India Free Trade Agreement

The negotiations between the EU and India were launched in April 2007. Even though substantial progress has been achieved since then, the current negotiations have stalled. The timeline for a possible bilateral Broad-Based Trade and Investment Agreement (initially expected to be finished already by 2009) is thus getting tight with both sides supposedly failing to close the deal on some critical issues, such as automotive sector, government procurements, data secure nation status and IT in general, certain agricultural products, pharmaceuticals or financial services (insurance). Another year-long interruption could be prompted due to the fact that elections in the EU as well as in India will take place in the course of the next year. Paradoxically, by the time a new government is established in India, the old European Commission will just be retiring, meaning that negotiations could begin only in early 2015. Such a delay in completing the FTA could even risk hurting several years of negotiations and slow down the process by about a year or two.

Arne Koeppel
Head of Research

FTI Consulting
Avenue Marnix 23 1000 Brussels +32 2 289 0939 Arne.Koeppel@fticonsulting.com

Vladimr Beroun
Consultant

FTI Consulting
Avenue Marnix 23 1000 Brussels +32 2 289 0806 Vladimir.Beroun@fticonsulting.com

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