The Cable

Cheese, Banks, and Chemicals Obstacles to U.S.-EU Trade Agreement

This story was updated.

The European Union and the United States are struggling to put their differences aside and ink the world's largest trade deal, leaving proponents and opponents alike worried.

Groups such as the U.S. Chamber of Commerce are trying to goose talks with events, letters, and other cheerleading while almost daily U.S. lawmakers are listing the dangers of free trade agreements.

"Nobody thought these negotiations would be easy," said Miriam Sapiro, who worked on the negotiations as U.S. deputy trade representative until she stepped down in February. "There's a reason that the U.S. and Europe don't have a trade agreement even though it's the most important trade relationship in the world."

The Transatlantic Trade and Investment Partnership (TTIP) aims to increase the amount of goods flowing back and forth across the Atlantic beyond last year's $650 billion. Although on the whole the United States has more in common with countries across the Atlantic than with some of its other trading partners, narrowing the gap between the two economies that combined represent 60 percent of global GDP is proving difficult.

European officials, for instance, continue insisting that financial services regulation be part of the talks, even though U.S. regulators and deal negotiators resoundingly reject the idea.

"I believe that the interoperability of our financial markets is actually key to the success of the rest of the trade talks," Michel Barnier, the EU commissioner responsible for financial markets, said in Washington on Thursday. He was in town to meet with U.S. regulators and trade negotiators, including Treasury Secretary Jacob Lew and Trade Representative Michael Froman. On his ninth trip to Washington in four years, he hoped to sway Lew and Froman but failed.

By Friday, a leaked internal EU draft revealing that the Europeans instead will threaten to exclude financial services from TTIP completely began circulating.

"The EU considers that the ambition of the EU offer is closely linked to the progress of discussions on regulatory cooperation," the document reportedly stated. "Therefore, commitments on financial services will be included at a later stage."*

U.S. officials argue that financial regulation matters are best hashed out bilaterally between regulators and in existing international forums, such as the G-20, rather than by trade negotiators who aren't as steeped in the details.

European negotiators are willing to put trade in financial services back into play if the U.S. agrees to discuss regulations. 

"The situation may change in the future if the US shows willingness to engage solidly on regulatory cooperation," the draft reportedly stated.

The U.S. says it won't budge.

"Unlike the other sectors in TTIP, there are multiple existing forums focused on the co-ordination of financial services regulation, including a bilateral forum," the Financial Times on Monday quoted Froman as saying.

Meanwhile, TTIP faces numerous other obstacles.

Until the deal is sealed, talks are vulnerable to whatever row breaks out between Washington and European capitals. Last week, French President François Hollande pressed President Barack Obama to go easier in a case against his country's largest bank. U.S. authorities are contemplating a $10 billion fine against BNP Paribas for its dealings with sanctioned countries such as Iran and Sudan. Obama dismissed the idea that he could intervene in a case brought by U.S. prosecutors. French Foreign Minister Laurent Fabius said the fine could hold up the trade talks.

"They have their national champions and they want special rules for them and they want BNP to be able to get away with money laundering," said former IMF chief economist Simon Johnson, who has been a strong advocate of tough, post-crisis financial regulations.

Barnier declined to discuss the fine because it's still under negotiation between the bank and the U.S. Justice Department. "We simply want this case to be investigated in a manner which is proportionate, fair, and objective," Barnier said.

The trade agreement aims to bring the two sides of the Atlantic closer on the oversight of everything from cars to chemicals. Cheese has proved to be particularly contentious. Europe has much stronger protections for food products from certain geographic areas. Whereas Europeans think Parmesan should come from the vicinity of Parma, Italy, Americans think it's perfectly OK to shake it out of a green plastic jar made by Kraft Foods.

"It will be one of the issues that is closed out toward the end because there is such a difference between the U.S. and the EU systems," said Peter Chase, the U.S. Chamber of Commerce's vice president for Europe, speaking from Paris.

Chase was in Madrid and Paris recently as part of the chamber's campaign to drum up support for the agreement. Some trade proponents are concerned that the talks, beset by so many obstacles, could stall. The chamber is also holding pro-trade forums in London and Rome in the next few weeks to nudge companies to more vocally and publicly support the talks.

"The opposition is gaining traction, and it's up to the business community on both sides of the Atlantic to counter this by speaking frequently and forcefully about the opportunities that TTIP brings," the Chamber of Commerce said in its announcement of the tour.

Underscoring how big the food fight is, Agriculture Secretary Tom Vilsack heads to Europe this week to discuss points of contention, such as the cheese-name wrinkle.

"The EU is the world's largest importer of food and agricultural products," Vilsack said in a statement. "But despite the continued growth of this market, U.S. market share is shrinking because U.S. producers and exporters continue to face numerous trade barriers. The negotiation of the TTIP offers a major opportunity to address these barriers and expand market access for U.S. farmers and ranchers."

Seasoned trade negotiators say the agreement is still in the early rounds, making it hard to know how many of the big issues will shake out.

"It's a lot of technical back-and-forth right now, but the difficult issues will be put off," said Gary Hufbauer, a trade expert at the Peterson Institute for International Economics.

That is, if the talks make it that far.

"You don't really know until the end whether you're going to get the deal or not," said Sapiro, who recently worked on the deal.

Opponents, such as labor groups and their allies in Congress, are focusing their efforts on the Pacific trade deal with Asian and Latin American countries, which is further along than the European agreement. But the anti-trade sentiment could make it hard to pass either one.

"For as many years I've been in congress I've never seen a trade deal that advantages the American manufacturer or the American worker," said Democratic Rep. Louise M. Slaughter of New York.

*Correction, June 16, 2014: European officials are threatening to completely exclude financial services from TTIP talks. A previous version implied that only financial services regulation would be excluded from the next round of discussions. (Return to reading.)


The Cable

U.N. Peacekeepers to Protect China's Oil Interests in South Sudan

For years, American administrations have embraced U.N. peacekeeping as a cost-effective alternative to U.S. military intervention, a policy that has allowed Washington to harness the power and purse of foreign governments to promote America's security and humanitarian interests abroad. "It's a smart investment," President Obama recently told cadets at West Point.

In South Sudan, the investment is indeed paying dividends -- for China. Last month, Beijing quietly secured a deal that will put the U.N.'s famed blue helmets to work protecting workers in South Sudan's oil installations, where China has invested billions of dollars over the years and holds a major financial stake -- at least 40 percent -- in South Sudan's largest oil field. American taxpayers, who fund about 27 percent of the cost of U.N. peacekeeping missions, will effectively be helping to shoulder the financial burden of securing China's investment.

The unprecedented arrangement was hammered out last month in closed-door negotiations -- which have not been previously detailed -- over how to bolster the U.N. Mission in South Sudan, or UNMISS, so it could better protect hundreds of thousands of civilians from ethnic cleansing. The beefed-up mission will include thousands of additional troops from African countries as well as hundreds more from China.

Faced with South Sudan's descent into civil and ethnic conflict over the past seven months, the United States spearheaded negotiations in the U.N. Security Council on a new resolution that would seek to ensure the safety of the country's civilian population. The resolution "focuses the mission on its core activities of protection of civilians; monitoring and investigating human rights abuses; and facilitating the delivery of humanitarian assistance," Samantha Power, the U.S. ambassador to the United Nations, said after the May 27 vote.

But garnering China's support came at a cost: ensuring the protection of South Sudan's oil workers.

UNMISS was established in July 2011, two days after South Sudan declared its independence from Sudan. With a force of nearly 8,000 uniformed peacekeepers, the U.N. was charged with consolidating peace and security and strengthening the government's ability to govern democratically.

But the United States, France, and top U.N. peacekeeping officials decided in recent months to change the mission's mandate after ethnic violence left thousands dead and hundreds of thousands homeless. The goal was twofold: improve the U.N.'s ability to protect civilians on both sides of the ethnic divide while reducing support for a government that had engaged in mass atrocities.

The decision to commit U.N. peacekeepers to the protection of the oil industry -- one of the few institutions in the impoverished nation with the financial wherewithal to pay for its own security -- initially encountered resistance from within the U.N. Department of Peacekeeping Operations, or DPKO.

Officials warned that it risked undercutting the U.N.'s neutrality, placing it squarely on the side of the South Sudanese government, which committed extensive atrocities in a civil war that has divided the country into competing political and ethnic camps. They also maintained that it would be unseemly to put the Nobel Prize-winning peacekeepers at the service of a commercial enterprise, regardless of how vital it was for the well-being of the country.

But China received the backing of the United States, Britain, France, and other key powers, whose representatives argued that attacks on South Sudan's oil infrastructure threatened to further destabilize the world's youngest country by destroying its main economic lifeline. Indeed, one Security Council diplomat said the negotiations were not the least bit contentious. Another observer described the Security Council as "ruthlessly pragmatic" in recognition of the importance of South Sudan's oil fields and of China's increasingly important role as a power broker in South Sudan.

China, a major operator and consumer of South Sudanese crude, is the largest foreign investor in Sudan and South Sudan's oil industry. Before South Sudan's independence, it led a consortium of companies in building pipelines from South Sudan's oil fields to Sudan's Port Sudan. Today, China National Petroleum Corporation controls a 40 percent stake (the largest) in a consortium, the Greater Nile Petroleum Operating Company (GNPOC), that also includes Malaysian petroleum giant Petronas and India's state-owned Oil and Natural Gas Corporation, Videsh.

In closed-door negotiations with the United States and other key U.N. powers, China insisted that the peacekeeping mission -- which was being reinforced with thousands of additional peacekeepers -- also protect civilian workers in South Sudan's oil installations, according to diplomats familiar with the talks. If it got its way, China offered to provide a battalion of as many as 850 additional Chinese peacekeepers to the mission.

The resolution, which was adopted on May 27, calls on peacekeepers to deter violence against civilians -- including foreign nationals, humanitarian aid workers, and human rights investigators -- and to devote particular attention to "areas at high risk of conflict including, as appropriate, schools, places of worship, hospitals and the oil installations, in particular when the Government of the Republic of South Sudan is unable or failing to provide such security."

China initially wanted its peacekeepers to be deployed in the key oil provinces, Unity state and Upper Nile state, in order to protect oil installations, according to diplomatic sources. "They basically said that they wanted to be where the oil is," said one source familiar with the negotiations. But U.N. officials said that Beijing, which already has about 340 peacekeepers in the country, was also prepared to deploy troops to other parts of the country. "Chinese troops are/will be deployed in areas where there are not necessarily oil field installations," said one official. "They are amenable to be deployed also in other areas."

A U.S. official defended the deal on the grounds that South Sudan's oil installations are "high-risk" areas that, if left unprotected, could contribute to the country's destabilization. South Sudan's oil exports account for more than 97 percent of the government's revenues, making the oil vital to its survival.  The Chinese mission to the United Nations did not respond to requests for comment.

South Sudan exploded into civil war last December, following a power struggle between South Sudan's president, Salva Kiir, an ethnic Dinka, and its former vice president, Riek Machar, an ethnic Nuer.

Rebel forces loyal to Machar targeted South Sudan's oil fields in an effort to deprive President Kiir of the funds needed to prosecute the war. In February, fighting between government forces and rebels forced the evacuation of foreign oil workers, including 300 Chinese nationals. Oil workers described a terrifying scene of fighting as Dinka and Nuer fighters struggled for control over oil installations in Unity state.

"Those who seek to undermine the long-term stability and economic prosperity of South Sudan have targeted civilians working at oil installations and the resolution recognizes this fact," a U.S. official told Foreign Policy. "In addition, it is important to ensure that control of the oil fields does not create additional friction in South Sudan's relationship with Sudan."

The resolution "prioritizes the protection of civilians as one of UNMISS's core mandates," the official, who spoke on condition of anonymity, added. "To this end, the resolution identifies areas 'at high risk of conflict' that need UNMISS to be more proactive in providing protection as appropriate. The high-risk determination reflects those sites where civilians have been particularly targeted in the past and where UNMISS has previously been called upon to provide assistance."

Some advocacy groups criticized the agreement, arguing that the U.N. should focus its efforts on protecting civilians and persuading the warring factions to make peace.

"The U.N. is walking a thin line between neutral peacekeeper and proxy military force for the government of South Sudan,"  said David Deng, a researcher for the South Sudan Law Society. "For the U.N. to protect oil facilities would clearly be a huge strategic advantage for the government and cannot be seen as consistent with the role of a neutral peacekeeping force."

Deng said the U.N. deal is only the latest example of regional and international powers intervening in the South Sudanese conflict on behalf of the government. He cited Uganda's military intervention on behalf of the government. "Now the U.N. is being drawn into a similar trap, protecting the government's oil assets while also trying to claim neutrality. Protection of civilians in oil facilities would necessarily entail the protection of infrastructure itself, which clearly favors one side in the conflict and undermines the U.N.'s ability to serve as a neutral humanitarian actor."

U.N. Photo/ Alberto Gonzalez Farran