Trade Secrets

The winners of the 2012 and 2009 Nobel Peace Prizes are hooking up. At the G8 summit on June 17, President Barack Obama announced that the United States and the European Union would begin trade talks in Washington in July. British Prime Minister David Cameron predicted that if negotiations for the Transatlantic Trade and Investment Partnership (T-TIP) succeed, the trade agreement would bring millions of jobs to the nations bordering the Atlantic and could be "the biggest bilateral trade deal in history." But as important as an EU-U.S. trade union would be for the global economy — and the resulting free trade area could amount to as much as 40 percent of global gross domestic product (GDP) — it has even more important implications for the future of democracy.

Trade diplomats from both the United States and the 27 member states of the European Union say they want to create a 21st century trade agreement. They stress that in order to achieve that goal, they must not only reduce visible barriers to trade such as tariffs, but also achieve coherence among a wide range of social and environmental regulations — everything from food safety and data protection to banking, labor, and environmental standards. Diplomats note that although these regulations have legitimate objectives, they may without intent increase costs for foreign vs. domestic producers. Firms selling to both markets potentially have to comply with regulations from the United States, the 27 EU countries, and the European Community (the bureaucracy governing the EU). However, if the United States and European Union can find common ground on these regulations, firms would have one set of common rules, the costs of production could decrease, more jobs could be created, and trade would expand. So far, however, neither side has made clear whether the end goal for regulatory coherence is harmonization, convergence, or some form mutual recognition where both parties accept the other’s regulations without demanding change.

American and European trade negotiators may find that regulatory coherence is difficult to achieve. First, both the European Union (at the national and European Community-wide level) and the United States have honed these regulations over time based on public and business preferences. Regardless of their impact on trade efficiency, the public on both sides of the Atlantic accepts these regulations as democratically determined and hence, legitimate. But U.S. and EU citizens may not feel the same about regulatory compromises developed in secret by trade negotiators. Second, the United States and European Union have very different approaches to designing and implementing such regulations — differences that stem from two equally different approaches to democratic capitalism and governance. In general, the European Union focuses on risks to society that stem from under-regulation — such as injury or death from unsafe food, medicine, or working places. The United States, by contrast, is more concerned about the cost effectiveness of regulations. Hence U.S. regulators weigh whether the costs of regulating outweigh the benefits, and whether market forces can better achieve these goals. .

Not surprisingly, the two trade giants also have different regulatory strategies. The European Union tends to regulate in a top down, state-controlled manner with labor, business, and civil society input. The United States, meanwhile, tries to encourage business self-regulation or, when directly regulating, tries to use regulation that encourages market forces (such as transparency) rather than the visible hand of government. Given these fundamental differences, trade diplomats may find that some citizens oppose the T-TIP on both sides of the Atlantic, whether because they believe attempts to achieve regulatory coherence mean deregulation or because they see them as defining regulations downward. At the same time, given the EU’s stronger regulatory regime, some trade critics also see opportunity in the T-TIP. According to Leo Gerard, head of the United Steel Workers, because European workers have achieved higher workplace standards and maintained greater union clout, "An agreement, properly designed and implemented, could be a force for progress." The obvious solution to this problem is to facilitate direct public input into the negotiations. Yet that is not the current strategy.

Trade policymaking in both the United States and European Union remains stuck in a 19th century time warp of opacity and secrecy. While trade negotiators require secrecy to discuss sector-specific tariffs or business confidential information, it’s hard to understand why such secrecy should apply to the negotiation of chapters on regulatory issues like labor rights, data protection (what the U.S. calls privacy), or the environment. Diplomats have long argued that secrecy builds trust between countries, as they must count on counterparts to keep information confidential. But in this type of negotiation, there is little to be gained from keeping the objectives, strategy or progress secret. On the contrary, by keeping so much of the negotiation behind closed doors, they may engender public distrust.

The United States has sought public comments on the negotiation and the European Parliament has given its assent to the actual negotiating draft. (Although individual members of Congress have weighed in on the agreement, Congress has not yet held hearings on the talks.) But neither the United States nor the EU  has clearly delineated how they might incorporate public comments  into the negotiation process.

The United States, in particular, has not met its promises to ensure transparent and accountable governance. During his first campaign for the presidency, then Sen. Obama promised to restore the American people’s trust in government by making it more open and transparent. The president fulfilled this pledge, at least in part, with his Open Government Directive, issued in 2009, requiring government agencies to go public with their data. Nonetheless, the administration’s approach to trade negotiations remains decidedly closed. For example, the website for the Office of the U.S. Trade Representative — charged with negotiating on behalf of the United States — is essentially a dissemination device, rather than an interactive forum on which citizens can register their input. At a minimum, the website should be used facilitate a broader dialogue with Americans concerned about trade issues; it should be interactive with staff designated to respond to citizen comment.

In general, trade policies in both the United States and the European Union are dictated by senior government officials who are generally responsive to a small group of concerned citizens and business interests. The U.S. Trade Representative does allow some individuals greater insights into the negotiations. For example, cleared advisors, including some members of Congress and congressional staff, are allowed to see up to date information about the negotiations — but they are required to have a secret clearance and to keep this information confidential. The bulk of these advisors represent commercial and economic interests — or are individuals with connections to the current administration. Neither the United States nor the European Union has developed an advisory committee i
nfrastructure to examine how to achieve regulatory coherence in a transparent, accountable manner — so here are two suggestions:

First, Congress and the EU Parliament should keep a close watch on the negotiations. Both bodies should also clarify whether achieving regulatory coherence means harmonization, mutual recognition or some other approach. Second, the U.S. Trade Representative and other agencies involved in the negotiations should become more proactive as well as more interactive online. The Obama administration should develop a website encouraging consistent public feedback and dialogue on the T-TIP throughout the course of the negotiations, rather than solely at the beginning and end. The website should clearly delineate the objectives of negotiations on regulatory coherence as well as the administration’s desired outcome. The website should also include regular updates on the negotiations for each chapter of the proposed agreement, particularly those that relate to environmental and social regulations.

Given the economic and political import of these negotiations, neither the United States nor the EU can afford to lose public trust in these negotiations. Policymakers cannot long proceed with secretive negotiations over policies that are not accountable to citizens as the very public scuttling of the Anti-Counterfeiting Trade Agreement and the Multilateral Agreement on Investment reveal. In fact, in its required Open Government Plan, USTR agreed that it needed to change its culture and become more responsive to the public at large, but it is struggling to figure out how to do just that.

Regulatory coherence is an important objective for the United States and the European Union. If the two trade behemoths can find common ground on regulations, their shared standards will set the bar for the global economy and facilitate high standards worldwide. They will also enhance the clout of the world’s oldest and largest democracies in the global economy. But policymakers must negotiate these regulations in a transparent and accountable manner that reflects 21st century standards for democratic governance. After all, even in the 18th century, policymakers such as James Madison recognized that a "popular government without popular information, or means of acquiring it, is but a Prologue to a Farce or a Tragedy, or perhaps both."