The Transatlantic Trade and Investment Partnership (TTIP) – should you be worried?

The TTIP is a treaty being negotiated between the European Union and the United States. It is essentially about free trade or further trade liberalisation between these two economies. It is about reducing so-called barriers to trade between them.

So what are barriers to trade?

Well, this post is not a basic course in cross border trade so I won’t go into detail; but essentially, they are:

  • Tariffs (a kind of tax on imports)
  • Licences (this can be setting a quota for certain goods and services to be imported or it can be stetting standards that goods and services have to comply with in order to be allowed into the territory of a country or (in the case of the EU) a region
  • It can take the form of subsidies – where local suppliers have an advantage because they receive subsidies and can therefore make their goods and services cheaper
  • It could be local content requirements – effectively giving some degree of preference to local suppliers
  • Or, in extreme cases, it could be an embargo.

There may be good reasons for establishing barriers. If one country has much lower standards for consumer protection, health and safety requirements, labelling (especially for food), worker protection and so on, then it makes sense for countries that have higher standards to ensure, as a minimum, that imports meet the requirements of the importing rather than the exporting country because it is in the importing country that the goods and services are going to be used.

Free Trade Agreements are intended to reduce such barriers.

What is wrong with Trade Agreements?

Of course, it’s quite easy to see why governments and big businesses like the idea of such agreements. But there are serious issues about having them; and although this one wouldn’t be the only or the first, it would be one of the biggest and most far-reaching (if not the biggest and far reaching of all) because it would be a treaty between two of the largest economies in the world.

According to the International Monetary Fund (IMF) the leading countries in terms of total GDP are (in 2012 – figures published in 2013)[1]:

 

Rank Country (or economy) GDP (Million US$) % of World GDP
1 European Union 16 673 333 23%
2 US 16 244 575 22.5%
3 China 8 221 015 11.4%
4 Japan 5 960 269    8.3%

So here are two economies, which between them represent some 45.5% of the world economy making a treaty to the benefit of each other’s businesses. This will have significant consequences on the terms on which other economies can compete on the world stage. Essentially, this would allow the US and the EU to set the rules for global trade.

But there are other issues; the two key issues are around regulatory cooperation and removing non-tariff barriers; and in some ways they are two sides of a coin.

Removal of Tariff and Non-tariff Trade Barriers

In a study for the European Union, the Centre for Economic Policy Research, London states:

‘As much as 80% of the total potential gains come from cutting costs imposed by bureaucracy and regulations, as well as from liberalising trade in services and public procurement.’[2]

So let us be clear, the main emphasis here is on non-tariff barriers.

So that moves us to the issue of regulation.

The EU and the US have different regulatory environments and different standards in relation to goods and services. If regulation is to be aligned this could lead to a watering down of standards. Of course, you could argue that it also could lead to an improvement in standards. But as the driver behind this agreement is industry, and as the public is pretty much being kept in the dark about the negotiations, I’d say that would be wild optimism.

What areas of regulation and standards are at risk?

  • Ecological Standards
  • Food safety and agricultural standards
  • Animal Welfare
  • Labour Standards
  • Human Rights
  • Data protection
  • Energy policy standards and in particular fracking

Of course, and because much of this treaty is yet to be finalised, we can’t be sure what will be specifically excluded and safeguarded; but all these areas of policy are under threat.

What is also under threat is the possibility of protecting certain areas of public services from privatisation. If companies can argue that not allowing private sector competition into the NHS for example (or not even more private sector competition) is negatively affecting their commercial prospects then that could be a very dangerous path to go down.

Much of these policies have been hard fought for over decades: more than a century of what I think of as political progress is under threat. We have already seen much progress eroded through the austerity measures following on from the so called financial crisis; a crisis brought about by profit-hungry banks bailed out by governments at the expense of poor people and public services.

This trade deal is risking more of this for very little actual gain. And it is being negotiated behind our backs.

The Ultimate Sting in the Tail – Investor-State Dispute Settlement

One of the elements of a number of bilateral and international treaties relating to trade contain what is referred to as ‘Investor-State Dispute Settlements’ (or ISDS, for short). This proposed treaty is no exception.

What is ISDS?

‘ISDS enables foreign investors to circumvent domestic legal processes and sue host governments in third-party arbitration tribunals for unfair or discriminatory treatment – described hyperbolically by those fanning the flames of opposition as “running roughshod over domestic laws, regulations, and sovereignty.”’[3]

Forbes is not known to be an ultra left-wing publication, so if they put it like this, who am I to argue.

Essentially, under a wide range of trade agreements, ISDS allows companies and individual investors (but not States) to put a dispute before a tribunal, which operates outside the judicial systems of either country party to the treaty.

Historically, the argument for such processes was mistrust in the rule of law in host countries. Whatever the merits of this argument might have been in the past and in relation to specific bilateral treaties, there can be no argument that the legal remedies available under normal judicial procedures in either the US or the EU are insufficient to protect foreign investors.

And on the basis that such treaties are supposed to guarantee that foreign investors are not treated differently (or less favourably) than domestic businesses, then allowing foreign investors a special settlement process outside domestic judicial systems potentially treats them more favourably than domestic businesses. That, surely, can’t be right.

ISDS allows an arbitration process which often takes place behind closed doors; the arbitration tribunal is made up of generally three people, one chosen by the foreign investor, one chosen by the State party and a third usually chosen by agreement between the parties or their appointed arbitrators or selected by the appointing authority, depending on the procedural rules applicable to the dispute.

What the procedural rules would be in the TTIP is yet to be seen.

Just to put this into a bit of perspective: cases under ISDS are managed by the International Centre for the Settlement of Investment Disputes (ICSIC) which is headquartered in Washington, D.C.; it’s administrative costs are carried by the World Bank.

The case load has increased significantly; this graph shows this from the numbers of cases listed on the ICISC website (analysis by me) from 1972 (first year listed) to 2013.[4]

Cases registered with ICISC 1972 - 2013 by year

The distribution of new cases in 2013 by industry sector – shown in the graph below (reconstructed by me from the ICISC annual report[5]) – does not surprise by showing that the oil, gas and mining sector dominates. Who said there is no risk from these treaties to communities deciding over whether they want fracking or not?

New Cases registered with ICISC by Sector 2013

 

European Commission Agrees to Consult on TTIP

Because of the hard work of a wide range of NGOs and some Members of the European Parliament, the secret negotiations of the TTIP have seeped into the public domain and opposition has generated some momentum. As a result, the European Commission has finally agreed to conduct a public consultation on this issue.

The Consultation opened on 27 March 2014 and will close on 21 June 2014. The consultation, headlined as: ‘Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP)’ can be accessed here and is open to anyone. So individual citizens have an opportunity to pitch in and make their voices heard.

Check back on this blog in a couple of weeks for my response to the consultation. Once submitted, I will make sure that it’s accessible here.

 

[1] Figures as published in Wikipedia, accessed on 8 April 2014 at: http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

[2] Reducing Transatlantic Barriers to Trade and Investment – An Economic Assessment, Final Project Report, March 2013, Prepared under implementing Framework Contract TRADE10/A2/A16, Centre for European Policy Research, London, p vii, accessed on 6 April 2014 at: http://trade.ec.europa.eu/doclib/docs/2013/march/tradoc_150737.pdf

[3] Dan Ikenson, ‘Eight Reasons to Purge Investor State Dispute Settlement from Trade Agreements’, published on Forbes.com, accessed on 8 April 2014 at http://www.forbes.com/sites/danikenson/2014/03/04/eight-reasons-to-purge-investor-state-dispute-settlement-from-trade-agreements/

[4] Data from ICISC website here: https://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=ShowHome&pageName=Cases_Home accessed on 8, 9, and 10 April 2014

[5] Data from ICISC website (2013 Annual Report) downloaded from https://icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDPublicationsRH&actionVal=ViewAnnualReports# on 10 April 2013

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About martinaweitsch

I'm interested in politics and rational political debate which isn't afraid of the facts or the complexities and contradictions inherent in most important issues.
This entry was posted in Economics, Politics in context, UK-EU and tagged , , , , , . Bookmark the permalink.

5 Responses to The Transatlantic Trade and Investment Partnership (TTIP) – should you be worried?

  1. Andy says:

    Why can’t the US simply adapt to EU standards and regulations when they trade with our single market? We make rules for so many different nations, 28 member states, many other nations cut and paste our rules. Why does the US require a special treatment? Is TTIP the hybris of US exceptionalism at work? What has the US to offer that would justify such a surrender of regulatory democratic competences? In data protection and surveillance we see them in non-compliance with rational demands… Do they deserve TTIP to get them to behave? I don’t get what the EU would gain from the process.

    • Of course, this is the nub of the issue; but our regulations cost money and that’s what corporates don’t want to spend on the things we think are for the common good.

  2. Pingback: Transatlantic Trade and Investment Partnership (TTIP) – who will defend the common good | rationaldebate

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  4. Pingback: What action of a government leader has demonstrated their unconcern for the welfare of their constituents? | fixerguy's Blog

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