The prospect of reopening trade talks with the US puts the European Union in an invidious position.
When Donald Trump’s commerce secretary, Wilbur Ross, last week reopened the door to negotiations with the European Union over the Transatlantic Trade and Investment Partnership (TTIP), pro-trade media across Europe rejoiced. Broadly, Ross’s comments were seen as yet another sign that Trump’s trade policies would not live up to his protectionist rhetoric and as an indication that Trump would not try to actively undermine the EU.
Yet, upon closer inspection, Trump’s flip-flop on TTIP is nothing to be happy about from a European perspective. In fact, his proposal of a trade deal with the EU at this point might do more damage to the EU than his former derogatory stance on European integration.
TTIP was a highly divisive issue even before Trump was became president. The positive economic effects of a possible agreement had been anticipated to be rather low (not more than one percent of GDP over a decade or so). And critics had pointed out that planned chapters for investment protection would risk undercutting European countries’ ability to regulate markets for consumer protection, social, or environmental reasons (see ECFR’s discussion on the investor-state-dispute-settlement issue here).
Particularly in Germany, Austria, and Luxembourg, public resistance to TTIP was intense, but scepticism has also been running high in France and Italy. In October 2015, Berlin saw its largest protests in decades, with hundreds of thousands taking to the streets in to protest against TTIP.
The European Commission had long ignored this criticism, insisting on the legal mandate that it had been given by the member states to negotiate the deal. It maintained that it was not obliged to listen to civil society. But the anti-TTIP mood turned, to a certain degree, into an anti-EU-mood. To the TTIP-sceptics, the Commission’s stance became a symbol of all that was wrong with the EU: aloof bureaucrats in Brussels negotiating corporate-friendly deals at the European level without listening to people’s concern.
It is fair to say that because of this negative public mood, there was actually quite some relief in a number of national capitals, such as Berlin, when Donald Trump’s initial comments on TTIP last year enabled policymakers to shelve the negotiations without having to bear the blame for the negotiations ending.
Since then, the balance has shifted for the EU, and not in a direction favourable to it. Politically, negotiating a trade agreement with the Trump administration will be very costly for the EU institutions. No other American president since the second world war has been as unpopular in the EU as Trump is. Starting negotiations with Trump on trade runs the risk of transferring some of this negative image to the commission. Hence, any negotiations with Trump on a free trade agreement (FTA) would come with significant costs and would be a boon to populists all across Europe.
The least worst strategy would be for the European Commission to delay any negotiations, then define strict red lines for them.
A number Trump’s statements and actions have rendered free trade agreements with the United States much less valuable in economic terms. Before Trump, the business sector was able to take FTAs for granted once they were signed. They were able to plan their supply chains accordingly and could rely on trade preferences remaining in place. Ever since Trump threatened to pull the United States out of the North American Free Trade Agreement, and a stunned public learned that this can actually be done by the president’s executive order, this security is gone. Moreover, Trump’s behaviour towards Canada (slashing a 24 percent tariff on imports on Canadian softwood lumber) and Mexico has demonstrated that becoming a close partner to the US under an FTA does not protect against a president’s whims.
Moreover, Trump has made very clear that one of his goals in trade negotiations is to reduce the US’ bilateral trade deficit with the trading partner concerned. It is difficult to see how any agreement that has its provisions geared to this stated goal can be in the economic interest of the EU.
So, what should the EU do now? Trump’s proposal clearly poses the commission a dilemma: if it restarts the negotiations soon, it will reignite protests in the EU against TTIP and might further boost anti-EU sentiment in the member states. Yet, it is difficult to decline to negotiate if the US administration invites the EU to do so.
The least worst strategy would be to delay any negotiations, then define strict red lines for them. This would have to include either an exclusion of the controversial ISDS provisions from the treaty or defining non-negotiable preconditions for ISDS such as a permanent independent international investment court. As the US would not be willing to agree to these points, TTIP would then effectively be dead. But, given that the net benefits of a TTIP negotiated with the Trump administration are questionable at best, and the blame for a failure of talks could be pinned on Trump’s unreliable stance on trade, this seems to be the best possible outcome.