Europe in the 21st Century: Future of EU Integration and Transatlantic Free Trade

Berlin, June 25, 2015
Ambassador John B. Emerson

Professor Welfens, vielen Dank.
Juergen Hardt,
Reiner Hoffmann,
Ladies and gentlemen,

I appreciate this opportunity to join you today for a discussion of the future of EU integration and transatlantic free trade.

Enacting the Marshall Plan in 1948, the U.S. Congress emphasized its support for economic cooperation in Europe as a foundation for peace and prosperity.  The leaders of the United States and Europe formed a partnership that was based on common values and one defining premise:  “If Europe is at peace, America is more secure.  If Europe prospers, America does so as well.”  The logic of mutually beneficial interdependence, where each nation can grow stronger and more prosperous because of the success of its neighbors and friends, made – and continues to make – eminent sense.  And I don’t think anybody would disagree with the statement that Germany has turned out to be the role model for that vision.  It would be hard to argue that the world would be a better place today if trans-Atlantic partners had not committed themselves to that vision.

Today, in the face of challenges and opportunities that George Marshall or Konrad Adenauer would not have dreamed possible, it is up to us, to take that commitment to the next level; to continue advancing along the path of economic and political partnership.  One way to do that is through the Trans-Atlantic Trade and Investment Partnership. As Secretary of State John Kerry recently put it, “2015 is simply not the time for us to decide that trade negotiations are too hard, or to vacate the field and ignore 70 years of lessons from [the years after] World War II.

Like other trade agreements, T-TIP addresses tariffs.   Of far greater significance, however, is its focus on non-tariff barriers to trade, and its geopolitical implications. Both aspects of TTIP will strengthen our hand in a global conversation to advance the kind of rules-based public commons in which the nations of our transatlantic community thrive; and will send a message to the rest of the world about the values an open trading system represents: freedom, open markets, rule of law, intellectual property right protection, transparency in our commercial dealings, high standards for consumer health and safety, and respect for and protection of the environment, and of working men and women.   And in so doing we will be creating a foundation for shared prosperity.

This sounds easy – and logical.  Unfortunately, however, the current debate over T-TIP is dominated by fears rather than the realities of free and fair trade.  Opposition to T-TIP has become a symbol around which those who are concerned about the dislocating impact of globalization have rallied.  Yet as Wirtschaftsminister Sigmar Gabriel says, “T-TIP is our opportunity to guide and harness the impact of globalization.”

Candidly, TTIP proponents lost the first round of framing the public discussion; and not because we lost a battle of ideas – but because we were very late in even showing up.  People need to hear specifics, about how increased trade with the U.S. will positively impact their lives.

In other words, we need to bring a more balanced perspective to the T-TIP debate.  We need to paint the big picture.  That includes addressing the misperceptions that have evolved.

One of the biggest challenges in negotiating and implementing T-TIP will be harmonizing different regulatory schemes and eliminating non-tariff barriers that are restricting our trade and investment relationships; and one of the most prevalent misperceptions about T-TIP is that this effort to harmonize standards will result in a ’race to the bottom’.  Some people worry that to compete in the economy of tomorrow, we will have to cut corners by downgrading standards, or paying workers less, or making lower-quality products.   That would be would be unacceptable – to both sides in this negotiation – and it will not happen.

And by the way, the impression that the U.S. has lower standards in consumer and environmental protection than Europe is just plain wrong.  In some areas, European standards are higher; but in many areas, again as Minister Gabriel has said, American standards are higher.  Americans were the first to require seat belts and airbags; our standards with medical devices and pharmaceuticals are widely recognized as the highest in the world.   When it comes to regulation to protect consumer health and safety, neither of us would accept a diminution of our high standards, as the leaders of both of our countries have made clear.   Let me be clear:  Americans don’t want lower standards – as you can tell from the recent debate in Congress. Europeans don’t want lower standards.  We won’t negotiate that kind of agreement.  And our elected leaders wouldn’t approve such a thing.

European and American regulatory systems are the most advanced in the world.  We know that when we sit down to a meal, or get behind the wheel of a car, or board an airplane – on either side of the Atlantic – regulators have worked to ensure our safety.  The problem is, as one trade policy expert says, “Both sides say, ‘this is simple.  We can get huge gains from coordinating.  You should just do what we do.’  And the other says, ‘No, it is better if you follow our model.’  And then, you end up with nothing.”  Well, we don’t have to accept ‘nothing’ for an answer.  There are reasonable and flexible approaches we can take to the issue of standards:  we can agree on one set of regulations.  Or, we can agree to recognize the standards of our partners.  Or finally, we can establish a framework, through T-TIP, to work out the tough issues as they arise.

The question of regulatory standards also pertains to another one of the misperceptions that has emerged: namely, the allegation that T-TIP will only benefit big companies. Very often, a product built to high standards in the EU cannot be sold in the U.S. – and vice versa – frequently due to minor differences in regulations.  A classic example is the auto industry, and the differing regulations for the tail lights on a car.  We don’t recognize each other’s testing methods; and therefore, these products must undergo separate testing; or companies need to develop dual lines of production.  Immaterial differences in regulation result in excess manufacturing costs, which get passed on to the consumer.  And they don’t have any meaningful impact on safety:  Believe me – European regulators are perfectly comfortable renting an American-made car when they travel in the U.S. – and vice versa.

The auto manufacturers may be big companies, but small business gets badly hurt by these manufacturing differences.  Large firms have the resources to maintain multiple production lines or to hire the lawyers and experts to deal with regulatory differences.  Smaller businesses – including the auto parts companies that are part of the supply chain in the automotive industry – often don’t; and they would benefit from the regulatory convergence that T-TIP might offer by saving money on duplicative testing and conformity assessments.

And in that regard, the Mittelstand here in Germany is well positioned to benefit from T-TIP.  Whether here or in my home state of California, startups and small and medium sized businesses are the backbone of our economies.  They help drive the job creation and the innovation that fuels economic growth.  Increasingly, these companies are taking advantage of transatlantic opportunities.  But for every small businesses’ successful entry on the international market, there are many more for which the barriers to exporting are just too high.  If we do it right, T-TIP will open the marketplace to those businesses which currently find the American market or the European market too complicated and too costly to enter.  And if we do that, T-TIP can also open our marketplaces to a new burst of innovation that can create the Mittelstand of tomorrow, and more high quality jobs for our workers.

Another issue we need to address pertains to agricultural products and the question of GMOs.  No, the U.S. – which itself has a major market for organic foods (bigger, in fact, than in the more populated EU) – has no interest in telling people what to eat.  We do, however, have an interest in making sure that decisions to ban food products are based on science, and not on fear.

The fact is, even with so-called “conventional plant breeding, for thousands of years farmers have changed the genetics of what we eat.  The wheat that goes into our bread, many of the fruits and vegetables that are farmed organically, and just about anything “seedless” has gone through one kind of genetic change or another.  Using GMOs just adds more options.  Some GMO modifications can make crops more drought-resistant – important in an era of shifting water resources due to climate change.  Others allow crops to resist pests, reducing the amount of pesticide that is dumped in to our environment.  People have a right to know what they’re eating, but they also have a right to foods being approved or banned on the basis of science rather than fear.

One fact about American agriculture that surprises people, by the way: 87 percent of U.S. farms are operated by families or individuals; and 89 percent of those farms are considered small businesses.  So Bavaria isn’t the only place with family farms.

Here is another misperception that has received great attention, both in the U.S. and in Europe:  the fear that the investor-state dispute settlement mechanism, or ISDS, will impose new, extra-legal conditions that will limit the ability of sovereign nations to regulate in the interest of financial stability, environmental protection, or public health.  Not true.   The ISDS approach, which was in fact first invented by Germany to protect its companies from having their assets nationalized by foreign governments, is not designed to prevent any government from adopting or maintaining non-discriminatory laws or regulations.  To the claim that ISDS will open the floodgates to company claims, it is already contained in over 2,000 bilateral and multilateral trade agreements.  And do you know, on average, how many ISDS cases have been filed in the last decade?  About 35 a year.  That’s it.  And more than two-thirds of those cases are filed by firms based in the EU.

I often hear in Germany that we don’t need ISDS because Germany and the U.S. have well-developed legal systems.  Well, this isn’t a trade agreement between Germany and the U.S.  It is with the EU.  Yet, Germany has insisted on ISDS clauses in a number of agreements with EU member states; and it will undoubtedly want to see it included in future agreements with other countries.  The solution is not to throw out this approach, which has been evolving over several decades, but to seek to improve it, and address some of the legitimate concerns that have been raised through the negotiating process.  Because in fact, over the decades, this approach has actually helped to establish higher global standards and strengthen arbitration procedures through clearer legal rules, enhanced safeguards, and greater transparency.

So let’s talk about transparency.  On the U.S. side, never before has the dialogue among stakeholders, including labor, environmental, and consumer groups, negotiators, and senior trade officials, been so candid and open.  But here in Europe, there is not only mistrust of the U.S., but also of Brussels – and while the negotiations would make little progress if conducted in front of TV cameras, there has to be a middle ground between that and simply saying “Trade is good!  Trust us.”   The good news is that the EU recently announced new steps to improve transparency on this side of the Atlantic.  And rest assured, once the Agreement is fully negotiated, every word and every clause will be fully and thoroughly discussed and analyzed before anyone has to cast a single vote.  So to that end, I simply ask that skeptics wait until they see what is actually contained in the agreement before acting against it.

Another myth I’ve heard: T-TIP will prohibit public subsidies of cultural and performing arts institutions.  This is not even on the table for discussion – and would have as many objectors in the United States as in Europe.

And finally, my favorite myth: the fear that T-TIP will require Europe to increase fracking.  No, but it could make it easier for the U.S.  to export natural gas to Europe, thereby increasing Europe’s energy security.

The U.S. economic relationship with the EU is the largest and most complex in the world.  The enormous volume of trade and investment promotes economic prosperity on both sides of the Atlantic, and in the dozens of other countries that trade with us.  In the future, however, the U.S. and Germany, and the other member states of the EU, will face a very different world market.  T-TIP will create new opportunities for sustained growth.

Unfortunately, as noted, an underlying sense of mistrust of the U.S. – and mistrust of the EU – has colored the public discussion of these matters in Germany.  And yet, interestingly enough, the T-TIP debate is taking place at a time when the economies of many European member-states are struggling. The fact is, as the EU contemplates the current state of economic growth and stratospheric youth unemployment, T-TIP can be a jobs package that is virtually cost free.

And there is yet another consideration: As Thomas Friedman recently put it in his New York Times column, we are facing a struggle between “the world of order” and “the world of disorder.”  There has never been a more important time for countries to come together, and establish the best rules for global integration for the 21st century.  Our future depends on our ability to cooperate with friends to solve problems ranging from extremism, to youth unemployment, to climate change.

This debate is taking place at a time when Western values such as rule of law, human rights, and open markets – the backbone of the “world of order” – are being challenged on many fronts.  With T-TIP, the world of order has the opportunity to reinforce those values; and to build an economic and strategic framework that can serve as the foundation for shared prosperity well into the coming century.

We must come together to confront other challenges as well.  The crisis in Ukraine not only imperils the hope of a Europe whole, free and at peace; it threatens the governing principles of the international order and a global rules-based system.  The borders and territorial integrity of a democratic state cannot be changed by force.  It is the inherent right of citizens in a democracy to make their country’s choices, and determine its future.  Adherence to these rules is central to an international system of peace, security, prosperity and freedom.

As we gather here this afternoon, ISIL is terrorizing the people of Syria and Iraq and engaging in unspeakable cruelty.  ISIL-linked terrorists murdered Egyptians in the Sinai Peninsula, and their slaughter of Egyptian Christians in Libya shocked the world.  Beyond the region, we’ve seen deadly attacks in Ottawa, Sydney, Paris, Brussels, and Copenhagen.  Elsewhere, Israelis have endured the tragedy of terrorism for decades.  Pakistan’s Taliban has mounted a long campaign of violence against the Pakistani people, most recently slaughtering more than 100 school children and their teachers.  From Somalia, al-Shabaab terrorists have launched attacks across East Africa.  In Nigeria and neighboring countries, Boko Haram kills and kidnaps, rapes and enslaves men, women and children.

We must remain unwavering in our fight against those and other terrorist organizations.  We also need to deepen our cooperation against foreign terrorist fighters by sharing more information, and by making it harder for fighters to travel to and from Syria and Iraq.  It is clear, however, that our work will not be done until we address the fundamental problem of young people who are so disillusioned and isolated – even when living in our midst – that they become receptive to radicalization by extremists.  We have to confront the warped ideologies espoused by terrorists like al Qaeda and ISIL, and especially their attempt to use Islam to justify their violence.

And in confronting terrorism, let me briefly address our important work together in the area of intelligence, which has been in the news, once again, as of late.  Our shared intelligence collaboration is essential to combating terrorism, both in Europe and elsewhere, and to understanding what in fact is happening on the ground in places like Ukraine.  But despite what you read in the papers – and I’ve said it before – the United States does not undertake industrial espionage for the commercial advantage of American companies.  We do not do it; and we have not done it.  And let me point out that there are plenty of other countries, including friends and allies, who have not made that statement.

We also face other serious challenges; and over the course of the past year, transatlantic partners have responded in a coordinated and cooperative way to a string of global crises.   As Secretary of State John Kerry recently said, the Cold War was simple compared to the multipolar, sectarian world of the 21st century.  But there are lessons to be learned from our shared history.

Our countries are closely linked in countless ways and by an extraordinary spirit of cooperation.  In fact, I would describe the German-American relationship as an “essential relationship.”  I am certain that the strength of our ties will help us address the serious challenges of the 21st century.  In the end, whether we are able to live up to our ideals comes down to us – and the choices we make in confronting these challenges together.  Ultimately, that will be the strength of our transatlantic partnership.

Vielen Dank.