Washington Insider - Monday

Trade Negotiations Under Pressure

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Chances of Concluding Canada-European Union FTA Slowly Shrinking

Trade negotiators representing Canada and the European Union met last Friday in Ottawa to officially conclude the negotiations leading to a new free trade agreement. However, whether the FTA can make it through to implementation is still an open question, at least in Europe.

Both Germany and the European Parliament are calling on European Trade Commissioner Karel De Gucht to re-open the agreement for further negotiation, even though De Gucht has pointed out re-opening the talks likely would kill the Comprehensive Economic and Trade Agreement (CETA). De Gucht and other trade experts also warned EU member nations that other EU trade policy — including the Transatlantic Trade and Investment Partnership (TTIP) with the United States — would be undermined.

Canada and the EU have been negotiating CETA for the past five years and trade officials on both sides had anticipated that last week's signing ceremony would be the next-to-last step in finalizing the agreement. The last-minute glitch does stand a good chance of killing the agreement and likely will give U.S. negotiators and trade policy officials second thoughts on Europe's reliability as a party to the TTIP as those talks continue. (Also see longer item below.)

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Congressional Democrats Aim to Expand Review Process for Foreign Investors

Legislation being prepared in both houses of Congress would overhaul the review process for foreign acquisitions of U.S. companies by making sure food safety and food security are among the factors in the evaluation of these purchases.

The proposals by Senate Agriculture Committee Chairwoman Debbie Stabenow, D-Mich., and Rep. Rosa DeLauro, D-Conn., are seen as a reaction to last year's acquisition of U.S. hog producer and pork producer Smithfield Foods by the Chinese food company Shuanghui International. At the time, the deal was seen as a way for Shuanghui to gain the technical know-how it needs to produce higher quality and safer pork. The two lawmakers appear worried that Shuanghui instead may introduce substandard production and safety techniques into the United States. For that reason, they want such deals in the future to receive the scrutiny of USDA and the Food and Drug Administration to assure that U.S. quality standards would be maintained after an acquisition of a food processor by a foreign company.

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Foreign acquisitions already undergo a rigorous national security review process by the interagency Committee on Foreign Investment in the U.S. The committee conducted a review of the Smithfield sale, and found no reason to prevent it from going forward. And since food manufacturing companies operating in the United States are required to follow food safety procedures set at both state and federal levels –– regardless of where the company's headquarters are located –– some are questioning the need for a new layer of review.

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Washington Insider: Trade Negotiations Under Pressure

After five years of negotiations, Canada and the European Union finally signed one of the world’s largest free-trade deals on Friday, although a possible negotiating rift with Germany added confusion to the event until the last moment.

Prime Minister Stephen Harper hosted EU leaders in Ottawa, under the banner of their regular summits, but prepared to highlight the signing of the Comprehensive Economic and Trade Agreement and the long-awaited public release of the detailed document.

Harper called the pact “...deeper in substance and broader in scope than any such other agreement in Canadian history,” as he joined European Commission President Manuel Barroso and European Council President Herman Van Rompuy in the signing. “By giving Canadian exporters preferential access to the EU’s 500 million affluent customers, this agreement will reshape our commercial relationship with the world’s single largest market place,” Harper said.

The signing made the news, but most reports also noted questions from Europe, especially Germany, about possibly re-opening the talks.

As you might expect, the European trade structure is determined to head off such a move. European Trade Commissioner Karel De Gucht argued in the press that re-opening the talks would kill the agreement (called CETA) and undermine the Transatlantic Trade and Investment Partnership with the United States. The German government and the chairman of the European Parliament's trade committee persisted in calls for CETA to be renegotiated. They both called for the investor-state dispute settlement (ISDS) component to be dropped.

"If CETA is to have a chance of being ratified by the European Parliament the negotiations need to be reopened and the investor-state dispute settlement must be dropped," Bernd Lange, a former member of Parliament told the press last week. Fellow German Social Democrat Sigmar Gabriel, who serves in the German coalition government as vice-chancellor and economy minister, told the German Parliament that Germany would not accept ISDS in Canadian or U.S. FTAs. It is not fully clear why Germany opposes the ISDS, except for the fact that it is seen as limiting national sovereignty in some cases.

ISDS provisions generally provide that if a host state violates rights granted under public international law then investors may bring matters before an arbitral tribunal such as the London Court of International Arbitration, or others. The intent, trade experts say, is to insure foreign direct investment has the right to "fair and equitable treatment," especially the right not be directly or indirectly expropriated without full compensation, but other rights, as well.

In the midst of the dispute, De Gucht warned EU member states against reopening CETA and said that "The Commission considers the text as final." "It is a good agreement creating opportunities for growth and new jobs." "[T]he agreement is in line with what the EU member state governments asked us to achieve in their negotiating directive." he said, but "member states can reopen the agreement if they wish to. This would mean re-opening the negotiations. In my opinion reopening CETA would mean killing the agreement."

If the agreement should fail, prospects for TTIP –– the proposed EU-U.S. deal –– will be seriously diminished and EU trade policy as a whole will have lost credibility, according to Fredrik Erixon, director of the European Center for International Political Economy.

"People against TTIP are now gunning for the EU-Canada deal," Erixon told the press "If that deal falls or if it cannot be approved in the EU with current inclusions of investor-state protection and regulatory cooperation, the prospects for TTIP are bleak.

There likely will be other rounds in the ISDS fight, observers note. For example, if CETA does come before the EU Council of Ministers for approval, that could involve an intense showdown among EU member states. Italy, which currently holds the rotating EU presidency, is expected to push hard for ISDS in CETA and TTIP when it hosts a meeting of EU trade ministers on Oct. 13 in Rome.

And, as the negotiations move on to focus on the TTIP, they are likely to face a groundswell of opposition both in the United States and in Europe since both sides are deeply dug in over a range of highly controversial social and economic issues. In addition, the EU, as usual, is unwilling to even discuss some of the deepest problems such as the "precautionary principle" which supports its opposition to biotechnology.

So, there are many steps to take before these huge markets unite to substantially reduce trade barriers, and Germany may yet prevail over the CETA. Overall, the odds of reaching the goal of better EU-US trade access seem as distant as ever, Washington Insider believes.


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