Free trade agreements (FTAs) might seem a million miles from the NHS. However, FTAs are not just about the trading of goods. They also cover services (sometimes defined as “anything you can’t drop on your foot”) and corporate rights. The UK Government is supporting the negotiations for FTAs that are currently underway between the EU and a range of other countries, treaties in which health services will be treated as things to be bought, sold and profited from. These agreements are largely negotiated in secret, but what we know from leaks and the release of very limited information is that we can expect disastrous consequences for the NHS. In these pages of the website we attempt to explain why.
What are Free Trade Agreements (FTAs)?
FTAs are treaties set up between the governments of two or more countries on behalf of large commercial companies with global operations (‘transnationals’) that grant privileged access to the markets of the countries concerned. FTAs aim to ease the trading of goods (and increasingly, services) across national borders by cutting tariffs (e.g. import duty) and – particularly with the new breed of FTAs – reducing non-tarrif barriers (such as regulations and standards governing the quality of goods, the safety of chemicals and medicines, the treatment of the workforce etc). FTAs also aim to establish rights to investment protection for transnational companies.
For the UK, trade policy rests exclusively with the EU: it is the EU, not its individual member states, that negotiates international trade agreements. The European Commission (EC) negotiates an FTA with a trading partner on behalf of the whole EU. The EC is also expected to work in close cooperation with the European Council and European Parliament who have to approve the overall agreement (although the secrecy characteristic of FTA negotiations raises questions about the nature or extent of this cooperation). Where an FTA is a ‘mixed agreement’ (i.e. where it is agreed that the specific content of the agreement means that it encroaches upon individual state’s national law) it must also, eventually, be put to the parliaments of individual member states for approval or rejection. For details of the full process, see http://trade.ec.europa.eu/doclib/docs/2012/june/tradoc_149616.pdf.
The arguments usually made for FTAs are on the grounds that they create better trading opportunities for commerce by:
- Opening new markets for goods and services
- Increasing investment opportunities and protection of investments
- Making trade cheaper by eliminating substantially all customs duties and cutting ‘red tape’
- Making trade easier by setting common rules on standards and regulations
- Making the policy environment more predictable by making joint commitments on areas that affect trade such as intellectual property rights, competition rules and the framework for public purchasing decisions.
The the most common argument put to the public is that, by removing restrictions on trade and so making it easier for private companies to trade, FTAs will increase economic growth and jobs.
However, some analysts say that these benefits are considerably overestimated and outweighed by the threats that FTAs pose. For example, for the UK:
- FTAs give transnational corporations the right to enter the UK market and operate without limits on their activities.
- FTAs encourage privatisation of the public sector.
- Some FTAs are concerned with removing non-trade barriers (such as regulations or standards – often governing safety) or ‘harmonising’ these so that each party to the treaty accepts the standards of the other, or sees their standards as equivalent (‘mutual recognition’). In many instances this means that accepting the regulatory standards of other countries could undermine many of our hard-won social, health and environmental regulations, and prevent new regulations where these interfere with transnationals’ profits.
- FTAs give transnationals the right to the same, if not better, treatment (including access to government subsidies) as domestic companies.
- If an FTA includes what is known as investor-state dispute settlement (ISDS), this has meant that transnational corporations have the unique right to use a secretly-run, international tribunal of three corporate lawyers to directly sue the UK government if it introduces any new regulation that might, even unintentionally, damage the corporation’s investment, including its expected future profits. (As a result of public protest against TTIP, particularly its inclusion of ISDS, ISDS in TTIP is currently under review and may involve a slightly different process known as ‘Investment Court System’ – see section on TTIP below for more details).
The costs to a national government defending an ISDS claim are considerable, even if they win the case. If they lose, the awards that ISDS tribunals can make are colossal. (For example, the American company Renco sued Peru for $800 million because its contract was not extended after the company’s lead smelting operations caused massive environmental and health damage.) ISDS also severely limits the ability of governments to move public services out of markets in which investors have substantial interests. (For more information on ISDS see https://www.youtube.com/watch?v=spBdTcaY3_Q#t=235). ISDS gives special privileges to foreign investors as it is not a course of action available to domestic companies or EU citizens. Nor can the UK government use ISDS to sue a transnational corporation. Curiously, as the EU trade commissioner has admitted, there is no direct relationship between the inclusion of ISDS in a FTA and increased foreign investment, prompting questions about why governments agree to offer foreign investors a special court (http://www.euractiv.com/sections/trade-society/positive-effects-ttip-tribunals-investment-unclear-317665).
A recent study looking at the size and wealth of the foreign investors that have received compensation through ISDS has found that, up to the Spring of 2015, most beneficiaries have been companies with over $1billion in annual revenue. The study also found that extra large corporations were the most successful in pursuing claims: 94.5% of all compensation paid was received by companies with more than $10 billion in annual revenue. In addition, it was clear that ISDS made substantial profits for the ISDS legal industry. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2713876
NB: A legal study carried out on behalf of ClientEarth in 2015 finds it doubtful that an international agreement containing ISDS (or, presumably, the Investment Court System that the EC has proposed for TTIP) is legal under EU law as it undermines the powers of the EU courts as well as the functioning of the EU’s internal market. The report highlights how important it is to clarify the situation but that only EU leaders can do this through putting a request for a legal check on ISDS to the European Court of Justice (see http://documents.clientearth.org/wp-content/uploads/library/2015-10-15-legality-of-isds-under-eu-law-ce-en.pdf).
And, in a similar vein, a recent report from a United Nations expert argues that trade treaties are legally invalid where they lead to a violation of human rights, or breach any other obligation set out in the UN charter (which trumps all other agreements in international law). He is particularly concerned that ISDS undermines human rights by adversely affecting the fundamental principles of the UN – state sovereignty, democracy and the rule of law (see https://citizenactionmonitor.wordpress.com/2015/10/28/un-official-advises-governments-how-to-protect-their-vital-interests-in-trade-negotiations/).
- In a recent development, FTAs may require that a Regulatory Cooperation Council is set up to ensure future coherence between the regulations of the different countries involved, giving new powers to corporations to re-negotiate existing regulations or to challenge proposed legislation (even prior to this coming before Parliament), if this conflicts with their corporate interests. Regulatory cooperation between the EU and US is not new: what is new is the level of ambition for this in agreements like TTIP.
‘Regulatory cooperation’ allows negotiators to dismantle regulation behind closed doors even after a FTA has been agreed and some see that this facility is even more advantageous to transnational corporations than ISDS. What’s more, the prospect that regulatory cooperation might be included in TTIP already seems to deter the EU from regulating. For example, apparently in response to threats from the US about the future of TTIP, the EU has repealed a ban on the treatment of beef with lactic acid and abandoned plans to ban certain pesticides associated with cancer and infertility.
- Overall, FTAs involve irreversible commitments made at a level of international trade law that trumps national law: once signed, it is almost impossible for a national government to cancel an FTA, or withdraw some of the commitments made. In other words, FTAs give far-reaching rights to transnational corporations while severely undermining the power of democratically elected governments and our national sovereignty.
For further general information on TFAs see http://www.econlib.org/library/Enc/InternationalTradeAgreements.html, and http://www.theguardian.com/commentisfree/2015/aug/31/transparency-ttip-documents-big-business.
For information on regulatory co-operation, see http://www.globaljustice.org.uk/sites/default/files/files/resources/race_to_the_bottom.pdf
The EU’s involvement in different FTAs
The EU is currently involved in agreeing a number of FTAs, including:
- The Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada. CETA is a so-called ‘new generation trade deal’ that is less about tariffs and borders, and more about reducing regulations and therefore governmental control over corporations. Areas covered by CETA include domestic regulation, public procurement, an extensive array of services, investment protection, ISDS, and the mutual recognition of professional qualifications.
CETA marks the first time the EU has agreed to open up access to the service sectors of its member states on the basis of negative listing (this is where all services are to be included in the treaty unless explicitly excluded). Although there are some (narrow) exclusions for public services, these are not excluded from the investment chapter. This means, for example, that if a future government wanted to reverse the privatisation of the NHS, it could be sued under ISDS by Canadian private health companies for damaging their profits. Such a government could also be sued by other private health companies with subsidiaries based in Canada – it’s worth remembering that 80% of US companies operating in the EU also have bases in Canada.
Secret negotiations on CETA were completed in September 2014. The agreement is now going through legal checks and translation: it could be presented to the European and Canadian parliaments for signing at any time now and then, probably, will have to go to the individual states’ parliaments for ratification. If so, this process may take some years but the EU does not have to wait for the full ratification process to be completed: surprisingly, the EU can apply the content of CETA on a provisional basis before it is agreed by all member states. CETA is thought to raise many of the issues associated with TTIP, such as the inclusion of a Regulatory Cooperation Council, and that its agreement will open the door to TTIP. However, unlike TTIP, there is no chance now to influence CETA’s content.
To see a 3 minute video about CETA and its relevance to TTIP, see https://www.youtube.com/watch?v=Zd_WQ21iKI8
For a statement from civil societies and trades unions that explains CETA’s aims and calls for the agreement to be refused, see http://www.s2bnetwork.org/wp-content/uploads/2014/11/UE-Can_DeclCommune_FINAL-Octobre11.ENG_.pdf.
See also http://www.s2bnetwork.org/issues/eus-free-trade-agreements/ceta-material/ and https://www.tuc.org.uk/sites/default/files/TUC%20CETA%20briefing%20for%20web.pdf for more information.
- The Trade in Services Agreement (TISA) is being negotiated between the countries of the EU and (currently) 25 others. Indications are that it will promote privatisation while reducing, if not removing, the ability of governments to regulate privately-delivered services. Any new services that develop in future (e.g. as a result of technological innovation) will automatically be included in TISA, without further negotiation. The treaty’s negotiations are highly secretive and the concessions being made by negotiators will only be publicised five years after TISA comes into force.
See http://www.world-psi.org/sites/default/files/documents/research/report_tisa_eng_lr2.pdf for more details.
- The Transatlantic Trade and Investment Partnership (TTIP) currently being negotiated between the EU and the US (for more details, see below).
These FTAs are prompting widespread concern among civil society groups. For instance, Cecilia Malstrom is currently the EU’s Trade Commissioner and in charge of trade and investment policy for all 28 EU member states, including the UK. In a recent interview, she made it clear that the huge public opposition that we are seeing to treaties such as TTIP (such as the 250,000 strong demonstration in Berlin in October 2015, or the petition signed by over 3 million European citizens against the treaty) is irrelevant: despite officially in post to follow the wishes of the elected governments of Europe, she said that she does not take her mandate from the European people http://www.independent.co.uk/voices/i-didn-t-think-ttip-could-get-any-scarier-but-then-i-spoke-to-the-eu-official-in-charge-of-it-a6690591.html. Instead, research has shown that her agenda is strongly influenced by lobbying on behalf of corporations http://corporateeurope.org/sites/default/files/attachments/public-services-under-attack.pdf.
Many of those actively opposed to these FTAs are not against trade as such, but argue for an alternative trade mandate, calling for democratically controlled trade and investment policies that, for example, allow human rights and issues like the protection of the environment and public welfare to be prioritised over the interests of corporations. For more details, see: http://corporateeurope.org/sites/default/files/trade-time_for_a_new_vision-print.pdf and https://www.unison.org.uk/content/uploads/2015/02/On-line-Catalogue229952.pdf.
The Transatlantic Trade and Investment Partnership (TTIP)
The European Commission (EC) is currently involved in negotiating TTIP, an FTA of unprecedented scale between the US and the member states of the European Union (EU), including, of course, the UK. It is not just – or even primarily – concerned with trade in goods, but also with trade in services. Its main aim is deregulation (or ‘liberalisation’ of the regulations governing trade). And it includes a requirement to set up a Regulatory Cooperation Council, which means that TTIP is a ‘living agreement’: it wont just reduce or ‘harmonise’ existing regulations, but will have a powerful influence on the kind of regulations that can be drawn up in future.
Initially, negotiators hoped that the deal would be concluded at great speed (or ‘on one tank of gas’) by the end of 2014, but unforeseen delays (not least because of public protest) mean that negotiators now aim to sign the treaty before US Presidential election campaigning starts in 2016. The likelihood of this happening increased recently when President Obama was granted ‘fast track’ authorisation by Congress – this allows him to negotiate international agreements which Congress can then either approve or not approve, but cannot amend.
Serious concerns about TTIP have been expressed by the public, trades unions and civil society groups, not least about the risks posed by the inclusion of ISDS or similar investment protection measures. For example, under existing FTAs involving EU countries, only 8% of US-owned firms operating in the EU (mainly in Central and Eastern European countries) are covered by ISDS, but these firms have already claimed more than 30 billion euros against EU member states under under this measure. If ISDS is included in TTIP, a further 92% of US-owned firms will have the right to use it and – given the litigious nature of US companies – the sums claimed are likely to rise dramatically.
In September 2015, public disquiet about ISDS (e.g. 97% of those taking part in an EU consultation rejected ISDS outright) led the European Commission to propose a new system called Investment Court System (ICS): if this is agreed (the proposal has not gone down well with the US business community), investors wishing to settle a dispute will be able to choose between using ICS or the relevant domestic legal system. ICS may bring more transparency to the legal process – initial information suggests that cases will be heard by randomly assigned judges rather than arbitrators, all documents will be available on line, hearings will be open to the public, and there will be a right to an appeal. But ICS is seen by sceptics as little more than a rebranding exercise: it would do nothing to resolve the fundamental problems of ISDS, such as giving special privileges to foreign investors; undermining national laws, and allowing national domestic courts to be by-passed. And judges would be paid a percentage of any final settlement made – raising concerns that this could lead to inflated damages being awarded to investors (and there are no limits on the amount that can be awarded). (http://www.transportenvironment.org/press/‘new’-investment-court-system-still-privileges-foreign-investors-under-eu-us-trade-deal.)
The EC claims that one of the main aims of TTIP is the reduction of tariffs. This is misleading, given that, at 3%, tariffs are already very low between the US and EU. The real priorities are
- to increase protection for transnational investors (for example through ISDS or a similar measure, although many argue that this is unnecessary in a treaty between countries which already have established and respected legal systems),
- to remove (or ‘harmonise’) ‘non-tariff’ or regulatory barriers that restrict profitable trade between the US and EU. Very often, countries have different regulations or standards governing the production of goods or provision of services. This can mean additional costs for exporters if they are to comply with the regulations of the country of import. However, the move to create a common transatlantic standard could mean a race to the bottom, with the least demanding standard being adopted. For example, the USA has not ratified a number of the most important International Labour Organisation’s Conventions approved by the EU, such as the rights to freedom of association and collective bargaining. And almost half of US states have passed ‘Right to Work’ legislation that undermines unions’ capacity to bargain and organise. In addition, the tests for safety in the US and EU are based on very different principles: in the US, producers can assume that products are safe until shown to be harmful, while in the EU the Precautionary Principle is used. This means that companies must prove their products are not harmful before they can be sold. Many fear that the removal of ‘non-tariff barriers’ between the US and EU will often mean the removal of our most prized and hard-won regulations and standards protecting, for example, our labour rights, environment, food safety, digital privacy, and banking standards.
Also at the heart of TTIP is an upgraded model of regulatory cooperation that would allow business groups to ‘co-write regulation” with trade officials. Regulatory co-operation will become mandatory, and it will apply to a huge range of measures (“anything you can make money on”). It will overseen by a Regulatory Cooperation Council that will ensure in-depth cooperation between regulatory agencies in the EU and US, as well as the involvement of various ‘stakeholders’, to bring about regulatory coherence. Concerned with primary legislation as well as secondary law, including directives on social and labour market issues, the Council and associated stakeholders will become involved at a very early stage of policy making, even before politicians. It’s thought that at least once a year, the EU will have to make available lists of regulatory changes that it means to introduce, allowing the US government and US businesses to intervene and influence the development of policy at an early stage. (http://corporateeurope.org/sites/default/files/attachments/regulatoryduet_en021.pdf)
The negotiation process
The whole way that this treaty is being negotiated is cause for concern. Transnational corporations have had frequent opportunities to lobby the EU Trade Department about the treaty but the same opportunities have not been extended to trades unions or civil society groups. For example, of the 560 meetings that the Trade Department held in preparation for negotiations, 520 were with business lobbyists and only 26 (4%) were with public interest groups. (for more details, see http://www.corporateeurope.org/international-trade/2014/07/who-lobbies-most-ttip). (See also http://corporateeurope.org/sites/default/files/attachments/public-services-under-attack.pdf for information about the strength of corporate lobbying about public services.)
At the same time, the voice of those objecting to TTIP is suppressed. For instance, the 97% of respondents to an EC consultation (mentioned earlier) who opposed ISDS included parliamentary and public bodies, academics, trades unions, businesses, the EC’s own advisors, as well as many members of the general public. However, the opinions of those critical of the treaty and ISDS were dismissed as ‘uninformed’ http://corporateeurope.org/international-trade/2015/02/ttip-investor-rights-many-voices-ignored-commission.
The negotiation process is also undemocratic because, despite a recent claim of improved transparency, the substance of on-going negotiations is largely kept from our MPs and MEPs, as well as the public. Only about 20 MEPs can currently access all the ‘consolidated texts’ (i.e. the negotiating documents that detail both EU and US positions): these are certain MEPs who have key TTIP responsibilities on the European Parliament’s Committee on International Trade – and then access is only available in a secure room in Brussels. All MEPs can access documents containing the EU’s position – providing they view these in Brussels (again, in a secure room), can read and understand the complex documents (in English) within one hour, make no notes and tell no-one afterwards what they have read. (see http://act.sumofus.org/sign/ttip_transparency_infographic/.)
Once the treaty is signed by negotiators, the European Parliament will only be able to accept or reject the treaty as a whole: they will not be able to amend it in any way (see http://arstechnica.co.uk/tech-policy/2015/05/ttip-explained-the-secretive-us-eu-treaty-that-undermines-democracy/). And because it’s not yet entirely clear whether TTIP will be treated as a ‘mixed’ agreement, it may not come to the parliaments of individual EU member states, such as the UK’s, for agreement. Even if it does, the ‘all or nothing’ approach that prohibits any amendment will put huge pressure on MEPs and MPs to accept the treaty.
What of the economic arguments?
The main political parties have been arguing, on the basis of figures given by the EC, that TTIP will bring increased growth and jobs. There is little credible evidence for these claims, which rest largely on an assessment made by the Centre for Economic Policy Research (CEPR). This research has to be viewed with caution. Its value is undermined because of potential bias: the CEPR is funded by the same international banks that are keen to see TTIP signed. The quality of the research is also weak, drawing on inappropriate research methods and models with a poor forecasting record.
Even the summary of the research report misrepresents its own findings. The section of the report on key findings states that growth from TTIP will bring a family of four an extra 545 euros each year. However, the main body of the research shows that this gain is not per annum but would be cumulative over 10 years: if this is taken into account, the more accurate figure is about 60 euros per year (equal to about one cup of coffee per person, per month).** And this very small gain is only predicted if the most optimistic, ambitious version of the treaty is agreed (i.e. almost total removal of regulatory barriers), an achievement thought to be highly unlikely.
Independent research suggests TTIP will lead to losses in terms of net exports and growth (http://ase.tufts.edu/gdae/Pubs/wp/14-03CapaldoTTIP.pdf) and that, while TTIP will bring little in the way of economic growth, it may result in actual job losses in the UK. Even EC-funded research suggests that at least 1.3 million European workers would lose their jobs as a result of TTIP, without necessarily being able to find new employment (http://trade.ec.europa.eu/doclib/docs/2013/march/tradoc_150737.pdf). Some research suggests that TTIP would lead to 600,000 job losses in the EU alone (http://ase.tufts.edu/gdae/Pubs/wp/14-03CapaldoTTIP.pdf), mirroring what seems to have happened following other free trade deals. For example, it’s estimated that the North American Free Trade Agreement (NAFTA) led to the loss of over 682,000 jobs in the USA, mostly in manufacturing (see, for example, http://www.epi.org/publication/nafta-legacy-growing-us-trade-deficits-cost-682900-jobs/).
The EC suggests that TTIP, through removing barriers to trade, will reduce costs to businesses wishing to export and this may be true to some extent for some sectors, such as car manufacturing. But TTIP will also create costs. Potentially, these include loss of government income from at-the-border taxes; loss of trade within the EU as a result of a shift to trading with the US; the negative economic impact of additional imports from the US; costs of strengthened intellectual property rights protection (such as higher costs for medicines due to increased patent protection); and costs associated with Investor-State Dispute Settlement cases (even when the UK successfully defends a claim).
The European Trade Commissioner has claimed that smaller businesses “will be among the biggest winners” from TTIP. But, increasingly, small and medium-sized enterprises (SMEs) across Europe are launching anti-TTIP campaigns. They are finding that negotiators only listen to big corporations, that small businesses, for one reason or another, will not have access to investor protection measures like ISDS, and that regulatory ‘harmonisation’ will do away with many policies (such as those promoting the use of local labour or resources) that benefit SMEs rather than large transnationals (http://threeworlds.campaignstrategy.org/?p=822).
Those in favour of TTIP have also downplayed the social costs of TTIP, resulting, for instance, from unemployment or the effects on health of less rigorous safeguards for food, chemicals and so on following the ‘harmonisation’ of US and EU regulations (see http://www.oefse.at/fileadmin/content/Downloads/Publikationen/Policynote/PN10_ASSESS_TTIP.pdf).
TTIP and public services
A further concern about TTIP is the threat it poses to public services and public procurement in Europe.
Public services are those provided by a government, usually on the basis that certain services, such as health, education, social welfare, and perhaps utilities like water, should, in the public interest, be available to all regardless of income. These services do not usually have profit as their primary goal.
Public procurement is concerned with the direct provision of services – in the NHS, for example, this could be hospitals, the purchasing of pharmaceuticals and medical equipment, construction contracts for new health facilities, or health care services.
Increasingly, the for-profit sector is being contracted by governments to procure or provide public services, although these are currently subject to tougher regulation than private sector areas. However, if agreed, FTAs like TTIP could limit future governments’ control of public services: attempts to regulate such services in the public interest could be overturned on the basis that such regulation is a ‘barrier to trade’.
At the same time, current EU rules allow environmental and social considerations to be taken into account in awarding contracts. For example, local governments can decide to buy only fairtrade or organic produce; to ensure that procurement benefits small and medium-sized businesses in the area; or to encourage the employment of a local workforce. These sorts of considerations would not be possible under TTIP because the European Commission, keen to improve the EU’s access to US local markets that are currently sheltered by “Buy America” schemes, has said it wants TTIP to open up local procurement to greater competition.
TTIP uses the negotiating strategy of ‘negative listing’ in deciding which service sectors will be included: this approach has been described as “list it or lose it” and means that even new services emerging in future (i.e. that we are currently unaware of) will also be included as they won’t be listed. Negative listing means that all public services can be opened up to TTIP unless explicit exceptions have been made. The EU’s initial offer on public services was leaked in June 2014. This suggested that medical, health and social services, along with postal, financial, environmental, and cultural services, telecommunications, transport, water, and energy are all on the table. There have been many assurances from the EC that public services that are – in the language of trade agreements – “supplied in the exercise of governmental authority” will be exempt from TTIP. However, many public services – although still publicly funded and managed by local or central governments – are now partly provided on a commercial basis or in competition with other service providers. This means that they are not, strictly speaking, “supplied in the exercise of governmental authority” and so may not be exempt from TTIP.
ISDS creates an additional threat to public services. Under CETA, for example, thousands of Canadian and US corporations (and EU-based transnationals with subsidiaries in Canada and the US) can sue the EU and its member states over changes to regulations that reduce corporate profits, possibly leading to $ billions in compensation payments. Policies regulating public services, such as capping the price of water, have already been the target of ISDS claims. In addition, such investor protection mechanisms included in treaties like TTIP serve to prevent any reversal of commitments that the parties made. For example, inclusion of a ‘standstill’ clause locks in existing commitments, while a ‘ratchet’ clause prevents the reversal of commitments made unilaterally after a treaty has been signed. This means that any move either already made or made in future towards the privatisation of public services, such as the NHS, is locked and cannot be reversed by any future government.
See also our pages :
2: why the NHS must be exempted from TTIP (if we cannot prevent the treaty from being agreed)