EU pushes financial regulation in US trade talks

European Commission says that ad hoc transatlantic debate about financial services undermines stability.

The European Commission is pressing for financial services to be part of the transatlantic trade deal that it is negotiating with the United States, arguing that some “inconsistencies” in regulation are “not only significant barriers to trade and investment, but they also undermine the global financial stability that both the US and EU are seeking to achieve”.

The Commission’s argument is contained in a ‘non-paper’ published yesterday (27 January), and comes at the end of the preliminary phase of the EU-US talks on the transatlantic trade and investment partnership (TTIP).

Both sides are currently making a political appraisal of what can feasibly be achieved in the trade talks and what their political priorities are. This would then be followed by an exchange of specific offers.

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The Commission’s decision to publish the paper suggests that Karel De Gucht, the European commissioner for trade, will make clear to his US counterpart, Michael Froman, that financial services must be considered a priority issue in the talks. The two men will meet on 17-18 February.

“The EU believes that financial regulation is too important to be discussed ad hoc, in informal settings at the very last minute, under market pressure,” the paper states. “To respond to these concerns, the EU proposed that the TTIP establishes a framework for regulatory co-operation in financial services.”

The Commission has from the start of the talks, last July, had to face down suggestions that inclusion of financial-services supervision could weaken European regulations.

While the Commission’s strong statement may allay concerns in Europe, it sets up a clash with US negotiators. An alternative put forward by US officials has been to have a separate track for discussions on how to narrow differences between US and European regulations.

The paper contains a four-point proposal for co-operation. Existing EU and US regulation would be reviewed. The review would focus on “outcomes”, with the possibility that, where the outcomes are “equivalent”, the two sides could agree to “mutual reliance on the rules of the other party”. Draft regulation would be appraised by the other side “to avoid introducing rules unduly affecting the jurisdiction of the other party”. Where standards are set in agreement with other countries or organisations, the EU and the US would work together “to ensure timely and consistent implementation of internationally agreed standards for regulation and supervision”.

Both sides have stated their ambition to complete talks swiftly, though an initial tentative timeline – agreement by the time De Gucht leaves office in November – has increasingly been replaced by references to the US’s stated desire to “get this done on one tank of gas”.

Areas of particular complexity and sensitivity could be addressed through a post-agreement mechanism, known as a ‘living agreement’, setting out shared goals and principles for negotiators.

Another area that is emerging as a major point of contention between the EU and the US is the issue of investor-to-state dispute settlement, a process championed by the US that gives corporations the right to sue states for breach of an inter-governmental trade treaty. The EU has such a clause in a free-trade agreement struck with Canada last year, but there is mistrust – shared by some EU member states – about the potential impact on European regulations. The Commission said on 22 January that it is opening up a three-month consultation on the topic. De Gucht described the public consultations in the middle of the negotiations as an “unprecedented” step.

“This consultation is part of the Commission’s overall determination to ensure that the TTIP negotiations are as open and transparent as is possible,” he said.