The Transatlantic Trade and Investment Partnership (TTIP)

Overview

The European Commission (EC) is currently involved in negotiating TTIP, a trade and investment treaty of unprecedented scale, between the US and the member states of the European Union (EU) including, up until now, the UK.  It’s currently unclear what the recent vote to leave the EU will mean for TTIP: the UK has been one of the chief promoters of the deal. However, it appears that if TTIP is signed before the UK formally leaves the EU, we may be subject to the treaty’s measures for up to 20 years.

The treaty is not just – or even primarily – concerned with trade in goods but also with investment and trade in services. It is also about reducing the regulations governing trade and introducing regulatory cooperation. This means that TTIP is a ‘living agreement’: it wont just reduce or ‘harmonise’ (bring into alignment) existing regulations, but will have a powerful influence on the kind of regulations that can be drawn up in future. Regulatory cooperation will also allow multinational corporations unprecedented power to shape EU member states’ legislation behind closed doors.  TTIP also includes an investor protection measure – either Investor-State Dispute Settlement (ISDS) or  Investment Court System (ICS) – that will allow foreign investors to directly sue the UK government for actions such as legislation that reduce company profits, including policies to protect the health or safety of UK citizens.

Even more broadly, TTIP is about setting global standards in trade negotiations. The hope is that by defining standards for the combined EU-US trade zone, other countries will also adopt these, encouraging their companies to sell into the transatlantic markets. This would put the EU and US at the heart of world trade as well as broadening what has previously been included in most treaties, such as investment, regulation of services and protection of intellectual property. (http://www.ose.be/files/publication/OSEPaperSeries/Myant_2015_OSEBriefingPaper11_nov2015.pdf)

Tariffs, deregulation and investor protection

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), and 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- although the research that demonstrates safety may remain unpublished on the  grounds of commercial confidentiality – while in the EU the Precautionary Principle is used. The Precautionary Principle 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 that protect, for example, our labour rights, environment, food safety, digital privacy, and banking standards.

In fact, In May 2016, Greenpeace Netherlands leaked a large number of TTIP documents indicating the position of the US for the first time. This showed that the US wants all regulations, including those governing environmental protection or health and safety, to be assessed by their effects on trade (i.e. rather than on the well being of the public). (For more details, see http://arstechnica.co.uk/tech-policy/2016/05/ttip-to-fail-leak-reveals-us-isds-gmos-demands/).

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 Investor State Dispute Settlement (ISDS) or similar investment protection measures such as ICS. 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 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 2013 researchers at the London School of Economics, were commissioned by the  Government’s Department of Business, Innovation and Skills (BIS) to look from the UK’s perspective at the costs and benefits of including investor protection in a FTA between the UK and US. The kinds of costs they considered were, e.g., the expense of litigation arising from ISDS claims and loss of ‘policy space’ (the government’s freedom to regulate or create policy). The benefits considered were mainly those of increased US investment in the UK and the protection of UK investors in the US. The researchers concluded that

“… an EU-US investment treaty that does contain ISDS is likely to have few or no benefits to the UK, while having meaningful economic and political costs. Removing ISDS from the treaty would be unlikely to have an appreciable impact on the (already negligible) benefits of a treaty with ISDS, while largely removing the costs of the treaty to the UK. While we have not conducted a full cost-benefit assessment of an EU-US investment treaty [that] does not contain ISDS, such a treaty would likely be a less costly policy option from the perspective of the UK.”(https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/260380/bis-13-1284-costs-and-benefits-of-an-eu-usa-investment-protection-treaty.pdf)

The response from BIS acknowledged the risks identified in the report, but largely evaded the issues by saying that the provisions for investment protection and ISDS in TTIP were still under negotiation (https://www.gov.uk/government/publications/ttip-vince-cables-response-to-ttip-no-public-benefits-but-major-costs/ttip-vince-cables-detailed-response-to-ttip-no-public-benefits-but-major-costs).

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 by the treaty’s negotiators, 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 TTIP documents leaked by Greenpeace Netherlands in May 2016 (see above) indicate that the US is insisting on ISDS being in the treaty (as opposed to ICS) (see http://arstechnica.co.uk/tech-policy/2016/05/ttip-to-fail-leak-reveals-us-isds-gmos-demands/)

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) in 2013. 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.

It predicted that, under TTIP, the EU’s economy would be increased by 119 billion euros (an extra 0.5% growth in GDP). However, this figure referred to the most ‘ambitious’ scenario in which there was almost a total removal of regulatory barriers, and only after TTIP had been in place for 10 years. This meant that the boost to the EU’s economy was only 0.05% annually, a figure so small it can be affected by all sorts of unforeseen events in the global economy.

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/).

A new study by the American Chamber of Commerce to the EU on the anticipated effects of TTIP on EU member states was published in January 2016     (http://www.amchameu.eu/media-centre/press-releases/ttip-provide-economic-and-social-benefits-eu-countries-study-finds). It uses the same (flawed) methodology as the CERP study of 2013, its results are identical and there are similar problems with core assumptions and some of the figures. According to one analysis, the study is useful for the detail it provides on how EU states may be affected by TTIP. But it also confirms that even the most optimistic assessment (i.e for the most ‘ambitious’ agreement) suggests that TTIP offers minuscule economic gains for both the EU and US (http://arstechnica.co.uk/tech-policy/2016/01/even-after-years-of-ttip-talks-new-study-still-unable-to-point-to-any-major-benefits/).

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). See also http://businessagainstttip.org/sites/default/files/ttip_mythbuster_sept_2014_1.pdf

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 particular concern about TTIP is the threat it poses to public services and public procurement in Europe, with particular interest from foreign investors in the health sector. For example, the EU represents almost a third of all global health spending.

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 cover 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 public services are currently subject to tougher regulation than private sector areas. However, if agreed, FTAs like TTIP could limit a future government’s 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 and the UK government 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 unlikely to be exempt from TTIP, unless explicitly excluded (see our page on whether the NHS can be exempted for more details).

The negotiation process

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) meant that expectations were modified: negotiators then aimed to sign the treaty before US Presidential election campaigning started in 2016. This looked more likely when President Obama was granted ‘fast track’ authorisation by Congress (allowing him to deal with international agreements that Congress could then either approve or veto). But recent leaks of the US offer suggest there is still considerable distance between the EU and US positions (http://www.theguardian.com/business/2016/may/01/leaked-ttip-documents-cast-doubt-on-eu-us-trade-deal). It therefore looks increasingly unlikely that the negotiations will be concluded by the time Obama administration leaves office in January 2017. If true, this is a significant blow to getting a deal done: the next US president may not choose to proceed with talks https://euobserver.com/economic/135560.

However, even if the deal fails, the whole way that TTIP is being negotiated raises concerns about whose interests are driving trade and investment agreements. Transnational corporations have had frequent opportunities to lobby the EU Trade Department about TTIP 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, 97% of respondents to the EC consultation on ISDS where found to either oppose TTIP or the inclusion of ISDS. These respondents 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 has largely been kept from our MPs and MEPs, as well as the public. It wasn’t until the end of 2015 that MEPs gained access to TTIP documents reflecting the EU position, providing they viewed these  in a secure room (initially only in Brussels), with access only to paper and pencil, did not make verbatim notes, could read and understand the complex documents (in English) within two hours and tell no-one afterwards what they have read.  (see http://www.waronwant.org/media/what-i-didn’t-read-ttip-reading-room for one German MEP’s experience of how she dealt with this). Breach of these rules would mean that no other MEPs would be allowed to read the documents. Subsequently, its also become possible, in theory, for UK’s MPs to view TTIP documents in a secure room in the Department of Business, Innovation and Skills under the same conditions of secrecy (http://www.theguardian.com/business/2016/feb/18/mps-can-view-ttip-files-but-take-only-pencil-and-paper-with-them). So far it’s not clear if any MPs have been able to actually gain access.

Once negotiations are completed and the treaty is signed by negotiators, examined for legal problems and then translated into all the languages of the countries involved, it needs to be agreed by the European Council and the European Parliament. (Given Brexit, it’s uncertain what say the UK’s MEPs can have now on ratification: their legitimacy to make decisions about the future could well be questioned by others in the EU.) Only if there is  ‘mixed competence’ (i.e.where content of the agreement includes non-trade issues and so it comes under the competence of the parliaments of the EU nations) does it then also need to be ratified by all member states.

Significantly, even if TTIP is a mixed agreement, once it’s been agreed by the European Parliament the European Commission can start ‘provisional implementation’ for those parts of the agreement for which it has competency. As the investment chapter of TTIP comes under the competence of the EU, this means, for example, that investment protection measures like ISDS will be in force across the EU from the start of ‘provisional implementation’ – i.e. well before the agreement is laid before member state Parliaments. In the case of a member state not ratifying TTIP, it’s not clear how this provisional implementation is reversed.

Members of 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/). This ‘all or nothing’ approach will put huge pressure on MEPs to simply accept the treaty.

The British public was promised that the UK Parliament would have its say on TTIP (even when it was still not clear if it was a mixed agreement).  For example, the Secretary of State for Business, Innovation and Skills, Vince Cable promised that “The UK Parliament … will have a full opportunity to scrutinise the deal before it is finalised.”  This must now be in doubt following the UK decision to leave the EU. We appear to be in a situation where, if TTIP is signed before the UK leaves, we are subject to the treaty’s provisions for up to 20 years – and yet we may be excluded from the ratification process.

But, surprisingly and irrespective of the recent referendum result, if TTIP or similar treaties come to the UK Parliament for ratification, they can’t be decisively vetoed by our MPs. They would be considered by the Scrutiny Committees in both Houses, but there is no requirement for our elected representatives in the House of Commons, or for members of the House of Lords, to debate and vote on such treaties. There is no clarity about how a debate or vote on a ratifying a treaty like TTIP would be triggered and, if no-one put forward a resolution to veto the agreement, it apparently could go through on the nod. And even if there was a debate and a resolution was passed to veto the treaty, the government could lay a statement before Parliament saying why they wished the treaty to be ratified. It would then be up to opponents to put forward another resolution to veto …. and so on, and so on (see the Constitutional Reform and Governance Act 2010, Section 20). While this lack of veto may have questionable relevance for treaties like TTIP or CETA, given our exit from the EU, it will surely be an important issue in future when the UK negotiates trade deals in its own right.

Update

The election of Donald Trump in the USA may have thrown the cat among the pigeons. In response to the US election results, the EU’s Trade Commissioner predicts a lull in negotiations until the new Trump administration is ready to proceed, saying “The ball is in their court”. Others see things differently: the French Trade Minister, for example, has described the negotiations as dead, but that no-one wants to admit it.

Other reading

TTIP and loss of sovereignty: http://www.newstatesman.com/politics/2014/09/ttip-biggest-threat-democracy-youve-never-heard

http://www.mishcon.com/assets/managed/docs/downloads/doc_2850/TTIP_Project_v6_PJ_PROOF.pdf

http://www.independent.co.uk/news/business/news/ttip-could-cause-an-nhs-sell-off-and-parliament-would-be-powerless-to-stop-it-says-leading-union-a7006471.html

http://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN06688#fullreport.

The Constitutional Reform and Governance Act 2010, Section 20 http://www.legislation.gov.uk/ukpga/2010/25/section/20

Slightly out of date on some issues, and perhaps naive about the ratification process, but still helpful in understanding how the EU works and how TTIP is negotiated: http://www.nftc.org/default/trade/European%20Union%20and%20TTIP.pdf

updated November  2016

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