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EU Draft Mandate Avoids Farm Subsidies, Privacy; Highlights Procurement

Posted: April 1, 2013

The confidential draft mandate proposed to European Union member states by the European Commission last month for comprehensive trade negotiations with the United States identifies some goals that are likely to be controversial for the U.S., according to a copy obtained by Inside U.S. Trade. These include enhanced protection for geographical indications and extensive procurement commitments that would seek to undo so-called Buy America restrictions and other carve outs, including those for small businesses. In a surprising move, the draft mandate also includes defense and security procurement as well as procurement in the fields of public utilities. Also bound to be controversial for the United States is a statement in the sanitary and phytosanitary section that states the agreement should also aim at establishing cooperation mechanisms on animal welfare between the parties. The draft mandate, in addition, notably omits U.S. priorities such as electronic commerce, an area in which the U.S. wants to include rules to promote more efficient cross-border data flows. The USTR notification sent to Congress on March 20 states the U.S. wants to develop provisions to facilitate the use of electronic commerce, and to facilitate the movement of cross-border data flows. In another omission, neither the U.S. notification nor the EU draft mandate mentions dealing with agricultural subsidies, which informed sources said both sides have agreed to leave off the negotiating table. Also potentially controversial for the U.S. is the draft mandate's language proactively seeking to shield EU and member state policies that extend subsidies to national film producers and impose quotas on foreign films and television programs in an effort to protect cultural diversity in the audiovisual sector. Specifically, it states that the agreement shall not contain provisions that would risk prejudicing the Union's cultural and linguistic diversity, namely in the audiovisual sector. However, the draft mandate does not formally exclude this sector from the negotiations. Audiovisual services are a potential trade interest of the United States in a U.S.-EU trade deal since the U.S. is pressing to have them on the table in the plurilateral services talks (Inside U.S. Trade, March 29). Even though both the draft mandate and the U.S. notification are based on the final report of the High Level Working Group (HLWG) released in February, they emphasize different issues. For example, on investment, the commission's proposed mandate makes clear that one goal of the negotiations should be to establish an "investor to state dispute settlement" mechanism, which is more explicit than U.S. notification to Congress. That notification said a U.S. negotiating objective in the talks is to "seek to provide and maintain meaningful procedures for resolving dispute between US investors and the EU and its Member States that are in keeping with the goals of expeditious, fair, and transparent dispute resolution." But the EU draft mandate also contains several key differences from earlier EU mandates approved by member states for investment negotiations with India, Canada and Singapore, for example. The most significant departure is the draft mandate's statement that consideration "should be given to the possibility of creating an appellate mechanism applicable to investor to state dispute settlement under the Agreement." Provisions requiring parties to consider establishing an appellate mechanism for investor-state disputes were included in U.S. FTAs with Korea, Colombia and Panama. Another difference is that the draft EU mandate states that the U.S.-EU investment chapter should be based on "the highest levels of liberalization and highest standards of protection that both Parties have negotiated to date." In addition, it goes beyond the earlier mandates by stating that an investor-state mechanism should provide for "transparency, independence of arbitrators and predictability of the Agreement, including through the possibility of binding interpretation of the Agreement by the Parties." A fourth difference is that the earlier EU mandates seek provisions on "unqualified" national treatment and most-favored

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nation treatment, while the draft EU mandate omits the word "unqualified" when referring to these standards. Finally, the earlier draft EU mandates say that the aim of investment negotiations with India, Canada and Singapore is to "include into the investment protection chapter ... areas of mixed competence, such as portfolio investment, dispute settlement, property and expropriation aspects." The draft mandate for the U.S.-EU talks includes no such mention of mixed competence in the area of investment. The issue of whether a U.S.-EU agreement will be of mixed competence with member states or solely of EU competence under the jurisdiction of the commission has already flared up as a controversial issue with member states ( Inside U.S. Trade, March 29). In addition to the investor-state dispute settlement process, the draft mandate and the U.S. notification endorse the concept of bilateral dispute settlement for general issues. On services, the commission wants to both sides to bind the highest level of liberalization captured in existing free trade agreements while pursuing new market access by addressing longstanding barriers but recognizing the sensitive nature of certain sectors. The EU makes clear that an agreement would continue to respect the carveouts that were included when both sides negotiated the General Agreement on Trade in Services (GATS). The U.S. notification takes a less nuanced approach regarding sensitivities by seeking to obtain improved market access in the EU on a comprehensive basis. The U.S. also wants the agreement to address the operation of designated monopolies and state-owned enterprises, as appropriate, an area which the EU draft mandate does not address. Both sides stress that an agreement should provide greater transparency, impartiality and due process on licensing, qualification requirements and other authorizations for supplying services. However, the EU draft mandate stresses that there should be binding commitments on these areas. Both sides also want enhanced services disciplines, but under slightly different terms. The U.S. seeks additional disciplines in certain services sectors and improved regulatory cooperation where it is deemed important. The EU, by contrast, wants binding commitments to enhance regulatory disciplines included in current U.S. and EU FTAs. In another example of contrast with the U.S. notification, the draft mandate spells out that the agreement will be a single undertaking consisting of commitments on market access, regulatory issues and non-tariff barriers, and rules. The three components will be negotiated in parallel as a single undertaking ensuring a balanced outcome between the elimination of duties and the elimination of unnecessary regulatory obstacles to trade. In contrast, the U.S. notification does not highlight the single undertaking. The HLWG working group also stays away from the single undertaking issue. It states that the two sides would get the most benefit out of a comprehensive agreement that addresses a broad range of bilateral trade and investment issues, including regulatory issues and contributes to the development of global rules. The single undertaking approach is very important to the EU, to the point that it has rejected the notion a tariff-only deal with the U.S. because that would require more concessions on its part than on the U.S. part. In a number of instances, the draft mandate contains more information than the U.S. notification, including on rules of origin, where it mentions that the negotiations will consider the extent to which they should include cumulation with countries that have an FTA with both the U.S. and EU. Both documents make clear that the two sides will not deal separately between tariffs on industrial and agricultural goods in the negotiations, though the draft mandate's language is even more general than the wording in the U.S. notification. The draft mandate only implicitly acknowledges that tariff negotiations will cover agricultural tariffs by stating that both parties will consider options for treating most sensitive products, including tariff-rate quotas. TRQs are used exclusively for agricultural products. The U.S notification expressly mentions that tariff negotiations will cover agricultural, industrial and consumer products But instead of mentioning the option of TRQs for handling sensitive products, it cites the option of transition periods where necessary for sensitive products. Both documents also endorse the goal of eliminating all tariffs, with a substantial duty elimination at the time an agreement enters into force, but the draft mandate differs by stating that there is also a shared objective of a phasing out of all but the most sensitive tariffs in a short time frame. The U.S. notification differs from the draft mandate by stating that it will seek to apply appropriate safeguard mechanisms if and where necessary. The EU draft mandate addresses safeguards separately, stating that the agreement may contain [a] bilateral safeguard clause by which either Party may remove, in part or in full, preferences where a rise in imports of a product from the other Party is causing or threatening to cause serious injury to its domestic industry. In an example of the U.S. going beyond the EU draft mandate, the U.S. market access section seeks to obtain fully

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reciprocal access to the EU market for U.S. textile and apparel products, supported by effective and efficient customs cooperation and other rules to facilitate U.S.-EU trade in textiles and apparel.

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