Does the EU Need a Trade Promotion Authority Mechanism?
University of Alberta (CANADA)
Dr. Greg Anderson was a DAAD/AICGS Research Fellow in March and April 2017. He is currently Associate Professor in the Department of Political Science at the University of Alberta (CANADA) and former Research Director (2009-2013) of the Alberta Institute of American Studies (AIAS) at the University of Alberta. He earned a BA and MA in American History at Brigham Young University and the University of Alberta, respectively, and completed his PhD in 2005 at the Paul H. Nitze School of Advanced International Studies of the Johns Hopkins University (Johns Hopkins/SAIS) in Washington, DC. During his time in Washington, he served as Policy Analyst (2000-2002) for the Western Hemisphere Office of the United States Trade Representative (USTR) under both President Bill Clinton and George W. Bush.
Dr. Anderson’s research has been funded by the Social Sciences and Humanities Research Council of Canada (SSHRC) and the U.S. and Canadian-based Donner Foundation. His teaching interests are broadly situated within the discipline of international political economy, particularly the political economy of North American integration. He has authored numerous pieces focused on Canada-U.S. relations, the politics of international trade and investment policy, U.S. foreign economic policy, and the impact of the global economy on forms of governance in venues such as The World Economy, the Journal of World Trade, and Diplomatic History. Greg’s recent writing has included a focus on the contemporary debate over foreign direct investment rules and the experience with investor-state dispute settlement (ISDS) within the NAFTA area. Dr. Anderson is also the co-editor (along with Dr. Chris Kukucha) of International Political Economy (Toronto: Oxford University Press, 2016). He regularly provides expert commentary for major Canadian radio, television, and print media outlets.
As a DAAD/AICGS Fellow in the Spring of 2017, Dr. Anderson will be advancing his research and writing on foreign direct investment rules and the controversies that have swirled around the U.S. and European experiences with them. More narrowly, Dr. Anderson’s project will focus on how those rules might have evolved in the proposed Transatlantic Trade and Investment Partnership (TTIP) and where they may now be headed in an era of anti-global populism on both sides of the Atlantic.
Governance of the European Union just became more complicated. On May 16, the European Court of Justice (ECJ) issued its ruling over which European institutions had “competence” over different provisions of the EU-Singapore Free Trade Agreement (Singapore FTA). In short, who gets to speak for Europe on which issues in trade negotiations?
In the midst of negotiating trade agreements with a number of countries, the European Commission in July 2015 asked the ECJ to have a look at the proposed Singapore FTA and sort out which areas of the agreement were exclusively under the Commission’s jurisdiction, and which were under the jurisdiction of member states. According to the ECJ, it’s a “mixed” bag. In most areas—tariffs and nontariff barriers for goods and services, intellectual property protections, investment, public procurement, competition, and sustainable development—the Court ruled the Commission has exclusive jurisdiction. Yet, the ECJ ruled that the Commission had to get the approval of each member state government for any agreement that included investor-state dispute settlement (ISDS) mechanisms such as those in the Singapore FTA.
In 2009, the Lisbon Treaty supposedly resolved this by clarifying the Commission’s power to negotiate international economic agreements on behalf of all Europeans (Article 3, 4, and 207 of the TFEU). Yet, Article 4 mandates that in areas of shared competence between the EU and member states, Treaties must be submitted to member states to receive their consent.
The ECJ’s ruling seemingly presents the European Commission with a stark choice: negotiate future agreements without ISDS as part of investment chapters, or submit completed agreements to each member state government for ratification. The first option would overturn decades of EU practice and make proposed TTIP negotiations with the U.S. a non-starter. Equally unpalatable, however, is the notion of submitting completed agreements to each European government for separate ratification.
How will states that embark on years of negotiations with Brussels be assured member states won’t reject a completed deal? How can the EU’s interlocutors be assured member states won’t make new demands at the ratification stage? The EU is big. Most of its potential trading partners are small. What country wants to pour resources into negotiating with the EU if member states can move the goal posts after the fact?
In many ways, we’ve already seen this movie. The Commission’s legal position in the Singapore case before the ECJ was that no post-agreement approval from member states was required; the Lisbon Treaty had concentrated that authority in the Commission. Full stop. Yet, in July 2016, the Commission nevertheless decided to propose the FTA with Canada (CETA) as a “mixed agreement” wherein member states would give post-negotiation approval. In October 2016, that process in Belgium went awry when the enclave of Wallonia decided it didn’t like the CETA. Many were taken aback. If the EU couldn’t successfully complete an agreement with Canada, with whom could they complete one?
American “Fast Track”
The United States confronts a similar, arguably more difficult, set of problems. The U.S. Constitution assigns the legislative branch jurisdiction over all aspects of foreign commercial relations (the so-called enumerated powers of Article I, Section 8). The lure of enhanced U.S. market access for foreigners is great, but the prospect of negotiating with 435 members of the House of Representatives is daunting.
Prior to 1934, the U.S. Congress was directly involved in setting the terms of commercial relations with foreigners. At least one result, the Smoot-Hawley Tariff Act of 1930, was disastrous. Since 1934, Congress has periodically delegated its constitutional authority over “commerce with foreign nations” to the executive branch under specific, pre-negotiated terms and time limits. In 1974, as President Nixon sought authority to negotiate in the Tokyo Round of the General Agreement on Tariffs and Trade (GATT), that authority evolved into an arrangement wherein the two branches of government negotiated the scope of that authority in exchange for an “up or down” Congressional vote on the completed agreement—no amendments were permitted.
It was a delegation of power that worked for both branches: the president received a credible set of trade tools for the foreign policy tool chest, Congress continued to exercise oversight authority, but absolved itself of collective action problems over a policy area in which parochial interests prevail. Importantly, Fast Track, known since 2002 as Trade Promotion Authority (TPA), has permitted the president to credibly claim to foreigners that Congress will not undermine agreements after the fact.
Europe Isn’t the U.S., but….
European governance is obviously different; twenty-eight sovereign states are not the same as 435 legislators. Yet, the principles behind delegation to a single negotiator are the same. One result of the CETA controversy was an affirmation by member states that ISDS should remain part of EU trade agreements. If 435 members of Congress can collectively agree to the terms over which they delegate broad swaths of statutory authority to the president, why couldn’t twenty-eight member states do the same with the Commission over investment, including calls for ISDS reform?
In the United States, TPA also helps overcome some of the nasty contemporary politics of trade and investment liberalization. Members of Congress are individually not predisposed to liberalizing trade and investment, particularly when the adjustment costs from liberalization are highly concentrated. Both the pre-negotiation and the post-negotiation “up or down vote” avoids the Wallonian situation by permitting complaints to be registered up front without having the broadly-based benefits of an agreement held hostage to parochial or unrelated concerns.
Wallonians were ostensibly concerned about the CETA’s impact on agriculture, but the real target of their ire was Brussels. A European version of TPA would permit those complaints to be heard before the Commission embarked on negotiations, giving the Commission the same added credibility and negotiating leverage a U.S. president enjoys with potential trading partners when armed with TPA. It might be difficult, but need not be complicated, and could be added to the existing process by which the Commission is already empowered to negotiate via the Council of the EU in consultation with the European Parliament. Alternatively, the Commission could embark upon the formalization of an EU investment model acceptable to all member states to be readily included as part of broader negotiations. Importantly, EU TPA would offer member states one last—albeit high stakes—“up or down” bite at the apple, ideally via the European Parliament.
If the United States can deal with the entire menu of issues that now make up the global trade and investment agenda, certainly Europe could adopt a process of pre-delegated authority from member states to the Commission that could do the same for investment.
Dr. Greg Anderson was a DAAD/AGI Research Fellow in March and April 2017. He is currently Associate Professor in the Department of Political Science at the University of Alberta (Canada).