US spying casts shadow over talks

This week a team of over 50 senior US officials is visiting Brussels for the second round of negotiations on the proposed Transatlantic Trade and Investment Partnership. The talks were supposed to have taken place last month, but were postponed due the US government shutdown.

Now the two sides meet in the shadow of the US spying affair, with European leaders and citizens outraged at the extent of US bugging in Europe. This has led to a major public outcry, especially in Germany, which for historical reasons has very strong measures on data privacy. Chancellor Angela Merkel is still waiting for an apology from US President Barack Obama for the National Security Agency's tapping of her phone for over a decade.

The spying allegations dominated the summit meeting of European Union leaders two weeks ago when they were supposed to be discussing the economy. Following the spying disclosure, Germany and the EU sent delegations to Washington to express European indignation and concern about the NSA's activities. Elmar Brok, the chair of the foreign affairs committee in the European Parliament and a close ally of Merkel, spoke of "a severe breach of trust" in the transatlantic relationship. This, he said, would take time to repair. The EU has now called for a "no spying on friends" pact with the US but so far there has been no response from the American side which is carrying out its own enquiry into the extent of NSA activities.

How will the spying scandal impact on the Transatlantic Trade and Investment Partnership talks? The President of the European Parliament, Martin Schulz, and other politicians have called for a suspension of the negotiations arguing that there has been a complete break-down in trust between the EU and the US. But EU leaders including Merkel and French President Francois Hollande, have rejected these calls arguing that a successful TTIP is in the interests of both sides. US Secretary of State, John Kerry, and the newly appointed US ambassador to the EU, Tony Gardner, have also called for the spat over spying not to derail the talks.

The reason why both sides are keen to limit damage is that they have both invested heavily in a successful transatlantic free trade area. The economic relationship between the EU and the US represents almost 50 percent of global GDP with trade worth some $2.7 billion passing across the Atlantic every day. A successful outcome to the negotiations would result in the largest bilateral trade deal ever concluded. President Obama and EU leaders are desperate for growth and it is estimated that a successful agreement would lead to a minimum annual 0.5 percent increase in growth for both troubled economies. Another reason is that, in the face of emerging new powers the EU and US are concerned about preserve the liberal international order that has been the cornerstone of the world economy since 1945. It is recognized that a successful deal will also have ramifications for other countries, such as the BRICS members, Brazil, Russia, India, China, and South Africa.

The two sides have established negotiating groups covering the following issues: investment, government procurement, cross-border services, textiles, rules of origin, energy and raw materials, legal issues, sanitary and phytosanitary measures, market access, industrial goods, e-commerce and telecommunications, intellectual property rights, labour, small-and medium-sized enterprises, agricultural market access, dispute settlement, the environment, financial services, competition, customs/trade facilitation, and state-owned enterprises.

The aim of the working groups is to identify areas of convergence and in areas of divergence begin to explore possibilities to bridge the gaps. The main areas of divergence are well-known: market access, regulatory compatibility and trade rules, and apart from agriculture, both sides have different takes on food safety, consumer protections and environmental standards that are deeply rooted in their respective cultures. There are also differences on financial regulation.

This week's talks in Brussels will focus on regulatory issues, services, energy, natural resources and investment. The teams negotiating on public procurement held talks shortly before the shutdown of the US government. A third round of talks is scheduled for mid- December in Washington DC.

One further shadow hanging over the talks is whether or not Congress grants the US President trade promotion authority, which would speed up the ratification process. The Republican controlled lower House is very anti-Obama and would not like him to have any easy victories. But the Republicans are also more committed to free trade than the Democrats so there is a good chance the President will get the authority.

Thus, the talks will continue, but the shadow of the NSA's activities does not create a conducive atmosphere for the negotiations. As one EU official remarked it made little sense to hold these meetings when the US side probably knew everything in the EU briefing books.

The author is director of the EU-Asia Centre in Brussels and a senior advisor to the European Policy Centre.