Is Germany emerging as the biggest obstacle to a liberal EU-US trade deal?

If you read our press summary, you will have noticed that the debate around the US-EU free trade deal (TTIP) is really picking up in Germany, with even the euro-critical AfD coming out against key elements of the deal ahead of the European elections.

Of all the mainstream newspapers in Europe, Süddeutsche Zeitung is the one that has devoted the most time and effort into covering the on-going negotiations over TTIP, and it has also published a number of comment pieces - both for and against.

In an opinion piece today, the paper's Economics correspondent Alexander Hagelücken argues that the debate around the EU-US free trade agreement (TTIP) has become “schizophrenic” amid mounting public opposition (as highlighted by the cartoon above). However, he argues that:

"European governments can escape the impasse by making it clear that they want to expand free trade via the TTIP principle while at the same time meeting the legitimate concerns of their citizens who do not want increased prosperity at the cost of losing environmental and health standards. GM foods? Only after passing the European approval procedure and with clear labeling. Investor lawsuits against environmental legislation such as Vattenfall’s legal challenge against the nuclear phase-out? Not before secret tribunals, but only in the ordinary courts."

He concludes that:

"Yes, such a path would not lead to unfettered capitalism with a neoliberal flavour but free trade with constraints. In other words, it would be the kind of social market economy which has given the [German] Federal Republic decades of prosperity after World War II, while tensions decreasing rather than increasing tensions between the social classes.” 

German public opinion will be a crucial factor in determining the success or failure of the TTIP negotiations. As with everything else these days, we suspect, on TTIP, as goes Germany, so goes Europe. 

EU approval process for GM requires better balance between innovation and democratic accountability

Yesterday saw a debate between the EU's Europe ministers regarding the approval of Pioneer 1507 - a strain of genetically modified maize which has been developed by US firm DuPont to be pest-resistant. This is a fascinating case which sees the clash between EU legal procedures and scientific evidence on one hand, and public opinion and green lobbying on the other.

Unbelievably, DuPont first applied for EU approval back in 2001, but due to the political resistance to GM in the EU, this application was deliberately kicked into the long grass despite six separate positive opinions from the EU's food quango, the European Food Safety Agency. The wider context is a climate of political hostility which has resulted in Europe falling far behind the rest of the world when it comes to biotechnology - aside from Pioneer 1507 only one other GM crop has been approved in the past 15 years. The result is that biotech companies such as BASF and Monsanto have already left the EU and others could follow suit, with the loss of jobs, investment and trading opportunities.

Following a legal challenge by DuPont, the EU's General Court ruled that the EU was breaching its own rules by not taking a decision. Opinion among member states was divided, with five states including the UK minded to vote in favour, four including Germany minded to abstain and the remaining 19 minded to vote against (a formal vote was not actually held). Despite the large number of member states opposing the approval, no qualified majority was reached either way.

Under the EU's comitology process, when the result is indecisive, the Commission can chose to push ahead with its original proposal, and its looks set to do so (in fact during the debate the Council's legal service indicated it would be legally obliged to).

This is undoubtedly a problematic situation. On one hand, it is good that the Commission is heeding the independent scientific recommendation issued by EFSA. As EU Health Commissioner Tonio Borg argued during the debate, member states should not pick and chose when to follow such advice and when to disregard it. On the other hand it is bad from a democratic perspective when the Commission forces through something opposed by a majority of member states and public opinion - the EU was rightly slammed for proposing to ban jugs of olive oil from restaurant tables following a similarly inconclusive vote.

The case therefore illustrates the need for more flexibility in the EU on issues where member states cannot agree and where public sensitivities need to be taken into account. As UK Europe Minister David Lidington argued during the debate:

"I've no wish to force any country that doesn't want to cultivate this variety of maize to do so... in the longer term the answer surely has to be some agreement under which we agree that those member states that want to have GM crops in cultivation are free to do it while those maintain a ban are free to do so as well."

Greater flexibility for member states to ‘go it alone’ in designing appropriate regulatory frameworks for GM was also one of the recommended in the recent Fresh Start report on the EU's impact on UK Life Sciences. This would be a good compromise - that way it would be down to national governments and parliaments to decide whether to allow cultivation of GM crops - and it would be down to national politicians in favour of this to show the requisite leadership to win over public opinion.

Would an 'independent' UK get a better US trade deal than the EU?

Could the UK sucessfully negotiate a trade deal with the US?

Yesterday MEPs voted on a resolution to back defensive measures to exclude cultural and some agricultural products, such as genetically modified foods from a proposed free trade deal with the US (TTIP).

Understandably US farmers have already taken exception to what they see as EU protectionism. This raises concerns that the potential gain from an EU/US trade deal may be watered down, delayed or even blocked all together by vested interests on both sides of the Atlantic.

As a member of the EU the UK's foreign trade is governed by the EU's common commercial policy and so has to be done via an EU deal. After the EU the US is the UK's most important trading partner. Some involved in the UK-EU debate - particularly Outers - suggest that if the UK left the EU it could negotiate a deal with the US on better terms than it could potentially gain via the EU. But is that the case? Here are some of the factors that could be important.

UK exports to the US in £bn (ONS 2011) are big...

A mismatch in negotiating power. Although the UK exports a lot to the US, as a % of it's total exports, the US sends only 4% to the UK. So although a trade deal should be mutually beneficial, reaching a solution would be disproportionately in the UK's interests. Therefore, there would be an imbalance of negotiating power. For this the EU's weight could help on issues where the UK's interests are aligned with it.

Would the US want to go through the hassle? Given this asymmetry, and the relative small market the UK is for the US, one question is if the US would go through all the political hurdles -  approval in Congress, taking on the unions etc. Indeed, talk to people in Washington and there's some scepticism about this. (However, the US has signed agreements with 23 states, some very small, so perhaps it is more a matter of the terms you would get?)

But US exports to UK (US BEA 2011) are small...

Fewer protectionist hold ups. At the same time, the US and the UK are more compatible economies than are the US and EU. The UK negotiating on its own account would not be hindered by protectionist issues emanating largely from France and MEPs, that could hold up US agreement or require concessions, such as the protection of agriculture, genetically modified foods or geographical indicators. However the UK is still unlikely to wish to see the US allowed to subsidise its agricultural exports, so tough negotiations would still be required.

Access for financial services could be a tough negotiation. The UK negotiating with the US on financial services would come up against a powerful US lobby attempting to protect its banks from what is New York's main rival - London. However, the UK negotiating on its own would arguably have a better chance to strike a deal on 'reciprocity' with US funds, a more generous arrangement than that which currently exists under regulations such as the AIFM Directive or UCITS. Additionally the UK would not bear the burden of having risky eurozone banks getting in on the deal. In recent negotiations with Singapore the US gained a better deal than the EU on financial services, partly because while Singapore was happy with UK banks it was wary of giving access to all eurozone banks (a big untold story in all of this).

If the idea is that an 'independent' UK can automatically join some gigantic Transatlantic free trade zone, in place of its current EU membership, there will be plenty of hurdles and a good deal is by no means guaranteed. Added to that there's also the small matter of negotiating an equivalent free trade deal with the EU....