Negotiations on the proposed U.S.-EU Transatlantic Trade and Investment Partnership Agreement are months away, but groups are weighing in on what and how the negotiations should proceed. The International Food & Agricultural Trade Policy Council (IPC) commissioned James Grueff, a U.S. consultant on agricultural trade policy, with input from IPC Member Stefan Tangermann regarding the EU perspective, to write a discussion paper: Achieving a Successful Outcome for Agriculture in the EU–U.S. Transatlantic Trade and Investment Partnership Agreement. The take-away message is that these negotiations will be unique and require innovative thinking.
The paper addresses four issues: commercial relationships, intergovernmental relationships, views of constituencies and developing an effective negotiating process. The commercial relationships are the easiest to address. The goal is to eliminate a substantial number of tariffs at the time of implementation. The annual value of EU agricultural exports (including forest and fish products) to the U.S. grew from $5.7 billion in 1992 to $17.8 billion in 2012, with nearly two-thirds of the total value now consisting of consumer-oriented food products (the largest components being beverages and snack foods). Intermediate products are 27 percent of the total and bulk commodities only two percent. U.S. agricultural exports to the EU have increase from $9.7 billion in 1992 to $12.1 billion in 2012, with consumer-oriented food products (tree nuts the largest category) accounting for approximately 40 percent of U.S. exports. Intermediate products are roughly one-fourth of the total, and bulk commodities accounting for about one-fifth.
Using the WTO’s tariff profiles, the average final bound duty on agricultural products entering the U.S. is 4.9 percent ad valorem; the EU average is 13.8 percent. Nearly 33 percent of U.S. agricultural tariff lines are duty free and 43 percent are between zero and 5 percent, compared to 32 percent and 10 percent, respectively, for the EU. Both have relatively high tariffs for dairy products, sugars and confectionery, and beverages and tobacco, and the EU also has relatively high applied tariffs for animal products and cereals and preparations.
In addition to tariffs and quotas, commercial trade has been restricted by the EU prohibition on imports of beef produced using hormone implants and U.S. restrictions on EU beef imports due to BSE concerns. The EU market has been closed to poultry from the U.S. until recently because of the use of pathogen reduction treatments. The largest export losses have been by the U.S. soybean industry because of regulations on biotech soybeans.
While the governments of the U.S. and EU have protected their agricultural industries in previous multi-lateral and bilateral trade agreements, the U.S. has been more interested in opening its markets than the EU. The differences in government approaches to trade policy are most obvious in the Sanitary and Phytosanitary Agreement (SPS) in the Uruguay Round Agreement in the early 1990s. According to the paper, “The U.S. and other countries insisted on the trade-oriented, science-based approach that became the basis for the SPS Agreement. Meanwhile the EU took a much more cautious approach in the negotiations and continually advocated the inclusion of non-scientific factors, such as consumer concerns, clearly reflecting the EU policy milieu of that time.”
Since the SPS Agreement went to effect in 1995, most of the trade disagreements between the U.S. and EU have been on SPS issues. Grueff says there are “three key aspects of this area: one is their conflicting views of the ‘precautionary principle’; another is their differing positions regarding ‘other legitimate factors’; and a third is the extent to which both sides have at times allowed political considerations to interfere with science-based decision making.” Ractopamine use in beef and pork production in the U.S. is the latest example of an SPS issue.
According to Grueff, the U.S. and the EU have different constituencies in trade talks. U.S. agriculture is primarily interested in an agreement covering all of agriculture that addresses non-scientific SPS import barriers of today like ractopamine and long-standing issues like beef hormones and biotechnology. They support the ‘SPS plus’ concept that would build on the current WTO agreement and provide greater transparency and more timely notifications. A larger challenge would be to accept each other’s SPS measures as equivalent.
EU producers will approach the talks in a defensive mode. They will look for a balanced agreement which does not impact any group too much and makes progress on geographical indications and more markets for cheese and maybe sugar. Beef may be a major point of contention because it is an important source of income and employment in less well-off regions. Agricultural interests are well represented in the European Parliament which will have to approve the agreement.
NGOs (non-government organizations) in the EU will see the trade agreement as a way to promote social, environmental and sustainability objectives in agriculture. Many farmers understand the benefits of biotechnology, but NGOs have the predominant voices on that issue. The EU will start with a defensive position and resist changes in biotechnology regulations. Grueff noted, “Private standards are being adopted by retailers as well as food companies to meet social, environmental, and sustainability objectives”, and WTO requirements are of little concern.
The last section on an effective negotiating process is of critical importance. Grueff believes based on the failures of the Doha Round, “the highest political levels on both sides should have the clearest possible agreement on the specific objectives, and a firm commitment to achieving them.” The process will require more than just negotiators meeting. One idea is for regular reporting by lead negotiators from both sides to high level officials. Another idea is to have SPS working groups with staff from counterpart U.S. and EU agencies. A third is to have an Agricultural Trade Advisory Committee appointed to focus on the U.S.-EU negotiations.
Grueff concluded by noting this is the first chance in decades to change the agricultural dynamic between the two trading partners. SPS and other non-tariff barriers are central to the negotiations and will include the concerns of the EU NGOs. Innovative approaches to negotiations will be needed and high level political commitment on both sides is essential.
Ross Korves is an Economic Policy Analyst with Truth About Trade & Technology (www.truthabouttrade.org). Follow us: @TruthAboutTrade on Twitter | Truth About Trade & Technology on Facebook.