TTIP — the US-EU trade deal. What is it, and where is it up to?

Container Ship tradeAt last year’s autumn conference, the Lib Dems pledged to support a new trade agreement between the European Union and the United States — known as the Transatlantic Trade and Investment Partnership. The motion, ‘Strengthening the UK Economy’ (pdf), called on the coalition to:

Increase trading opportunities by working in the EU to ensure that the success of the Transatlantic Trade and Investment Partnership, doing everything possible to revive the World Trade Organisation led Doha Development Round and further integrating the EU services market.

Since then there has been significant progress in the negotiations to make the agreement a reality, and given that it is official party policy to support the plan I thought it might be useful to summarise what the agreement is about, and where it is up to.

What is TTIP?

Here’s the summary from the European Commission:

It aims at removing trade barriers in a wide range of economic sectors to make it easier to buy and sell goods and services between the EU and the US.

On top of cutting tariffs across all sectors, the EU and the US want to tackle barriers behind the customs border – such as differences in technical regulations, standards and approval procedures. These often cost unnecessary time and money for companies who want to sell their products on both markets. For example, when a car is approved as safe in the EU, it has to undergo a new approval procedure in the US even though the safety standards are similar.

The TTIP negotiations will also look at opening both markets for services, investment, and public procurement. They could also shape global rules on trade.

The negotiations have been split into a number of “chapters”  — on, for example, agriculture, investment and energy. Some areas, such as financial services (at the US’s request), have been excluded from the negotiations.

Who is doing the negotiating?

The European negotiation team is made up of dozens of officials from the European Commission, led by Ignacio Garcia Bercero (pdf). A list of the lead negotiators for each chapter can be seen here (pdf).

The US team is led by Dan Mullaney, Assistant United States Trade Representative for Europe and the Middle East, and the list of US lead negotiations can be seen here (pdf).

How are the negotiations conducted?

Since July 2013 the teams have held six, week-long rounds of negotiations alternating between Brussels and the US; the sixth round concluded on 18 July in Brussels. EU reports from each round can be found here.

During each round meetings are held at which ‘stakeholders’ and ‘civil society’ can attend to make representations. Here’s an account from one such meeting in the US in May, from the Financial Times:

One morning last month Giorgio Bocedi, a rotund Italian lawyer with a practised charm, stood up in a brightly-lit university classroom in the Washington DC suburbs and began extolling the virtues of eight centuries of cheesemaking tradition – and the 245,170 cows responsible for producing the world’s Parmigiano reggiano.

Those cows – and the 3,439 dairy farmers around the northern Italian city of Parma that they belong to – helped produce 3.279m wheels of parmesan each year, Mr Bocedi boasted. And yet still there were pretenders. “The name Parmesan has been used for a long time in America. But we don’t know why. Usually it is used in association with Italy!”

Within minutes he had handed over to Patrick Kole, a representative of the Idaho Potato Commission, who was eager to defend the importance of Idaho’s soil in growing the unique tuber and to point out the injustice of a pizza company registering the US state’s name as a trademark in Germany.

“We know exactly what is going to go on top of that pizza,” Mr Kole declared. “Kartoffel! Potatoes!”

What areas are being discussed?

As can be seen from the list of areas with dedicated negotiators, an impressively wide range of topics are under discussion, incorporating trade in both goods and services as well as investment. There are negotiators working on, for example, pharmaceuticals, cars, public procurement, services, competition policy and intellectual property.

Some areas, such as energy (as a result of recent developments in Russia), have taken on greater significance during the negotiations, and some have proved more challenging — the chapter on investment, for example, stalled because of concerns over the enforcement of the agreement against states (see below).

Controversies

Without fail, free trade agreements provoke controversy, and world-wide talks frequently attract well-documented protests from a panoply of groups opposed to such deals.

While TTIP has, fortunately, not caused riots, there has been vocal opposition on both sides of the Atlantic. One of the early areas of criticism came from digital rights activists in Europe concerned about the privacy implications of reported US demands. Unsurprisingly, given the agreement will likely contain provisions on the regulation of energy production and the trade in energy sources, a number of environmental concerns have also been raised.

One of the areas that has recently attracted attention in the UK is the proposed dispute mechanism available to companies to enforce the provisions of the free-trade agreement, known as the ‘investor-state dispute settlement’ (ISDS), and explained by the FT thus:

ISDS clauses allow companies to take governments to international arbitration panels to seek compensation if they feel their investment has been hurt by government action.

Until a few years ago cases were rare. But there has been a surge in filings by companies taking an ever broader view of what constitutes a legitimate cause for action. According to the Organisation for Economic Co-operation and Development, 57 ISDS cases were filed against governments in 2013, almost half of them in developed economies.

There is a useful briefing paper on ISDS from the House of Commons Library here (pdf).

Some member states, including Germany, have expressed concern about ISDS. Here, the Unite union recently called for the NHS to be “excluded” from TTIP because of a supposed threat from ISDS.

Interestingly, however, some, such as the Cato Institute, have suggested that ISDS is unnecessary and potentially counter-productive to the aim of trade liberalisation.

Asked about the issue at the weekend, Vince Cable seemed optimistic:

What now?

Negotiations continue, and on the most optimistic timetable an agreement may be possible by next year, which would helpfully come after US midterm elections and before the 2016 presidential election. Trade deals have typically been seen to be very difficult to achieve during US presidential election years, though it may be the case that TTIP will prove easier given the already high level of trade between the EU and US.

Compared to the dire progress of global trade deals in recent years, TTIP seems to progressing promisingly, if slowly. As The Economist reminds us, though, the potential prizes from a deal being done are large, not only in terms of the economic benefits of the trade and investment flowing directly from the deal but also in terms of the strategic position of the EU facing up to increasingly hostile neighbours and in possibly even creating momentum for the resurrection of the World Trade Organisation talks to agree a global deal: prizes that all liberals should be eager to acquire.

* Nick Thornsby is a day editor at Lib Dem Voice.

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28 Comments

  • Alex Macfie 21st Jul '14 - 2:12pm

    The problem with ISDS is that it gives foreign investors *more* rights than domestic businesses (although domestic firms might be able to avail themselves of its benefits by setting up foreign subsidiaries purely for this purpose). It essentially gives foreign investors the ability to short-circuit the democratic process: it allows them to modify domestic law through exclusive, opaque, biased tribunals. It is a direct attack on the principle of equality before the law, and thus it is something that no liberal should ever consider supporting.
    The original purpose of ISDS was to give investors protection against tinpot dictatorships arbitrarily confiscating foreign assets. It has no place in agreements among mature democracies with well developed legal systems rooted in the rule of law.
    Our position (and in particular that of our one MEP (thanks Clegg!)) should be to oppose any trade agreement containing any form of ISDS.

  • Alex Macfie 21st Jul '14 - 2:17pm

    We should also be on guard against other policy laundering through TTIP and other agreements. The European Parlimament rightly rejected ACTA, which was an attempt to launder maximalist intellectual property protection (e.g. “three stikes”, ISP liability, enshrining of rigid anti-circumvention laws, in-transit seizures). We must not acceept the same trade agreement that attempts to sneak in these or similar provisions.

  • There is an interesting summary of the debates in economics blogs by David Saha on the link below. One thread seems to be that given the already low trade barriers economic benefits may be relatively modest.

    http://www.voxeu.org/article/transatlantic-trade-and-investment-partnership-review-debate-economic-blogs

  • The original purpose of ISDS was to give investors protection against tinpot dictatorships arbitrarily confiscating foreign assets. It has no place in agreements among mature democracies with well developed legal systems rooted in the rule of law

    This is true but remember this is not just an agreement between the US and the UK, where such clauses would be as you say unnecessary, but includes the whole EU, some members of which are not ‘mature democracies with well developed legal systems rooted in the rule of law’ but very young democracies with extremely recent histories of political interference in their courts.

  • Alex Macfie 21st Jul '14 - 3:08pm

    All EU member states are bound by the European Court of Justice, the EU’s highest court, to which anyone may take a case that a member state is acting unlawfully. They are also signatories to the ECHR. Therefore, there is simply no need for any special parallel tribunal system to which only foreign investors have access.

  • Alex Macfie 21st Jul '14 - 3:34pm

    “we are an open market economy ” and that is exactly why we should NOT have ISDS. ISDS gives special protection to foreign investors, and so is the antithesis of an open market. We cannot allow foreign investors to over-ride laws made through the democratic process by appealing to a tribunal that it stuffed with their supporters.
    And if, say, the French or anyone else act unlawfully by nationalising things at the drop of anything, then those who lose out can appeal to the European Court of Justice, where they will get a fair hearing as will the state whose actions they are opposing. And the ECJ will decide things according to the rule of law, not on just the right of foreign investors to make a profit, as an ISDS tribunal would do.

  • ISDS gives special protection to foreign investors

    Why is that a bad thing?

    Domestic investors can influence a government’s actions directly, through democratic means if the country is a democracy. In extremis, if a government decides to pass a law nationalising something owned by a domestic investor, the domestic investor can respond by voting the government out and electing an alternative government that can either reverse the nationalisation or pay compensation.

    Foreign investors have no such recourse: it is therefore easier for a government to decide unilaterally to nationalise an asset owned by a foreign investor, as they don’t have to worry about the foreign investor’s reaction costing them at the next election.

    This isn’t an abstract concern either: it really happens. It happened in Greece, when the government changed the law so that foreign investors in Greek government bonds got a ‘haircut’ and there was nothing the foreign investors could do about it.

    The playing field is therefore tilted against foreign investors. Foreign investors, in the absence of ISDS, have less protection than domestic investors.

    ISDS is a way of evening out the playing field and ensuring that governments cannot with impunity seize the assets of foreign investors without paying them fair compensation.

    What is wrong with that? It’s an attempt to take an unfair situation, and make it fairer. Isn’t that what liberals are supposed to be for?

  • Alex Macfie 21st Jul '14 - 3:52pm

    @Dav: Your argument is essentially that because foreign investors supposedly can’t influence a country’s laws through the democratic process, they should be allowed to short-circuit them. But why should this just apply to corporations? By your logic, foreign visitors to a country should be exempt from following its laws (or should be given a special legal process to challenge them) because they never had a say the making of these laws.
    But your argument is flawed anyway because a lot of so-called “foreign investors” are multinationals, and they may be domestic investors as well. And as I explained above, domestic investors can just set up foreign subsidiaries so that they can claim to be foreign investors and use this legal short-circuit.
    And once again, anyone has recourse to the ECJ if an EU state acts unlawfully.

  • The Adam Smith Institute blog makes a similar Greek Haircut point…

    http://www.adamsmith.org/blog/healthcare/len-mccluskey-is-not-entirely-correct-about-the-nhs-and-ttip/

  • Your argument is essentially that because foreign investors supposedly can’t influence a country’s laws through the democratic process, they should be allowed to short-circuit them.

    Nobody’s short-circuiting any laws.

    ISDS only comes into play if the host country changes its laws, after the foreign investor has invested, to the detriment of the foreign investor.

    By your logic, foreign visitors to a country should be exempt from following its laws (or should be given a special legal process to challenge them) because they never had a say the making of these laws.

    A more exact analogy would be a foreign visitor who arrives and obeys all the laws of their host country, but then finds the host country changes its laws to the deliberate detriment of the visitor, because the visitor hasn’t got a vote and so can’t object.

    In that situation then it does seem fair for the visitor to be able to challenge the change in the law, do you not think?

  • And once again, anyone has recourse to the ECJ if an EU state acts unlawfully

    If that were the case, the Greek haircut would have been challenged in the ECJ and the Greek government told to pay back its debts in full. That didn’t happen; why not? And given it didn’t, how can any investor have faith that the ECJ will protect their investment?

  • Richard Easter 21st Jul '14 - 4:25pm

    The problem is that ISDS has been used to overrule national laws, for example the French multinational Veolia has sued the Egyptian government over its rise in the minimum wage. Surely that takes the power out of the hands of governments to make and pass laws based on a democratic mandate by the citizens of a country. People should have the right to elect a socialist / green / liberal / conservative or libertarian government without intereference from predator multinationals. UKIP London MEP Gerard Batten has stated he doesn’t want private prisons. Should G4S via a US subsidary be able to sue Britain if he nationalises prisons or indeed outsourced police functions? Ditto on the left with Labour renationalising Railtrack.

  • Green Voter 21st Jul '14 - 4:27pm

    @Dav
    “It happened in Greece, when the government changed the law so that foreign investors in Greek government bonds got a ‘haircut’ ”

    But why did they do that? Was it because the economy was in a mess, due to government action?
    It seems that you are arguing that investors ought to be protected from risk. But that is the nature of investment.

  • Little Jackie Paper 21st Jul '14 - 6:30pm

    Dav – ‘It happened in Greece, when the government changed the law so that foreign investors in Greek government bonds got a ‘haircut’ and there was nothing the foreign investors could do about it.’

    The value of investments can go down as well as up, I thought that this was well-known. If you put money into a bank – any bank – it is a risk. As those who invested in a number of countries’ banks have found out recently those risks are very far from theoretical. Why exactly should someone be protected from business risk by dint of being foreign?

  • Nick T Nick Thornsby 21st Jul '14 - 6:42pm

    I’d urge people to read the Commons briefing paper on ISDS – it sets out a lot of detail.

    http://www.parliament.uk/Templates/BriefingPapers/Pages/BPPdfDownload.aspx?bp-id=SN06777

  • Little Jackie Paper 21st Jul '14 - 6:46pm

    jedibeeftrix – ‘I too do not see ISDS as a problem for britain; we are an open market economy and the very opposite of what the CATO institute term “investment unfriendly-countries”’

    With respect. You are not wrong. But the point I have here is the binding nature of this INTO THE FUTURE. If the UK ever did want to, say, start renationalising things at the drop of a hat, then surely that is a decision for democratically elected governments? I can, and am, concerned at the lack of democratic purity in the EU, but this really is no better.

    Granted, it is national government that is giving out these contracts, and we can make value judgment on that at the ballot box if we don’t like it.

    However the point remains that this is effectively a supranational law that ties the hands of future governments regardless of what the voters say. It is corporate sovereignty, plain and simple. There are all sorts of questions here about how hollow governments operate, but to simply dismiss any and all concerns about what we are signing up to seems a bit glib.

    Another possibility might be to have ISDS panels take cases bought by transnational consumer groups or trade union confederations against the corporates. But I suspect that some people won’t like that very much.

  • Richard Dean 21st Jul '14 - 7:05pm

    Swings and roundabouts? ISDS is un-necessary as a protection for investors, in the sense that investors will already have factored the risks into their investment calculations and decisions. And companies choosing to operate in tin-pot dictatorships will presumably adapt their business practices to survive best in that environment.

    ISDS may be helpful for the investee, the country seeking investment, because it may reduce the risk perceived by investors, so making the investee more attractive. But this is perhaps a rather minor advantage in a “mature democracy”. It does mean that the government takes on the risk of being sued, which manifests itself in less freedom to decide.

    Personally I would prefer no ISDS, no reduction of the ability of a government – and so of a people – to take decisions about their future.

  • Little Jackie Paper 21st Jul '14 - 7:16pm

    Richard Dean –

    ‘But this is perhaps a rather minor advantage in a “mature democracy”. It does mean that the government takes on the risk of being sued, which manifests itself in less freedom to decide.’

    It depends how you look at this. One of the interesting instances at the moment is potential ISDS cases against Germany over its closure of nuclear power (energiewende). Is that something that the state should be able to decide on, unfettered by supranationalism and indeed corporate interest? I don’t know, but it will be a test.

  • Richard Dean 21st Jul '14 - 7:28pm

    @Little Jackie Paper
    Indeed, now that my brain is waking up, I recall that companies that make explicit agreements with governments should already be protected by contract law, and maybe the nuclear companies should already be able to sue the German state for breach of contract.

    Why add the extra “protection” of ISDS – protection for companies but not for populations and the taxes they pay ?

  • What is actually at stake here?

    Almost all figures used by backers of the TTIP seem to track back to a series of studies by the Centre for Economic Policy Research (CEPR) commissioned by the EU. They think (see voxeu link by Edis Bevan above) that if tariff barriers are lowered to zero, non-tariff barriers by 25% and public procurement barriers by 50% then the increase in EU GDP by 2027 would be 0.5%. Folks, that’s WAY LESS than the measurement error involved.

    Moreover, the CEPR figures are based on a computable general equilibrium model that assumes full employment! General equilibrium exists only in the imagination of neoclassical economists and does not model the real world in any useful way (hence the unforeseen financial crisis for instance) and as for assuming full employment – words fail me. Would you buy a car from a manufacturer who advertised its fuel economy on the basis that energy losses between tank and wheel could be ignored?

    So, if the advantages are both tiny and suspect, what about the possible downsides?

    Well, democracy would be thrown under the bus for one thing. It would remove a whole bunch of decisions from the control of Parliament and our domestic courts, even the High Court. It would also violate the long standing principle that Parliament cannot bind its own future actions. There is a significant impairment of democracy here that I find totally objectionable irrespective of any arguments about alleged investment benefits.

    Parliament and the courts will be replaced by arbitration panels comprised f international trade lawyers. This is a tiny group of individuals who take turns acting as prosecuting attorney and ‘judge’. It’s an almost perfect recipe for both groupthink and moral hazard with bigger awards leading to bigger paydays. I forget the exact statistic but a majority of cases globally have been handled by a handful of individuals in a self-propagating elite. The think to remember here is that the rule of lawyers is antithetical to the Rule of Law.

    When it comes to the effect of tariff reductions we should ask which sort of “free trade” the backers mean because there are two meanings which are polar opposites of each other. The traditional liberal one is that trade should be conducted according to transparent rules that keep markets fair and open to competition and work to prevent the emergence of monopoly or oligopoly. The other is the conservative meaning which means abolishing any rules (aka regulations) that might hinder the development of monopoly and the extraction of economic rent.

    It’s pretty clear that the context here is the second meaning, the Conservative one. That is why Intellectual Property (IP) provisions bulk large in the agreements. US big pharma sees an opportunity to extend its exploitative and anti-competitive drug patents to Europe while Monsanto hopes it can force approval for its GM seeds on Europe and at the same time prevent product labelling that reflects its use. It doesn’t follow that such actors will get their way but why on earth should we open the door to that possibility?

    Moreover, the high cost of actions ($4 million per party according to the Commons briefing paper) means that this is free trade only for the largest companies that can afford a speculative spend of millions; small firms will have no real recourse under the TTIP.

    It’s all very well to quote in general terms car safety approvals as the sort of area where costly anomalies should be sorted out (I agree incidentally) but the devil is in the detail and such issues should be handled slowly and patiently on a case by case basis. We should certainly not simply hand over these decisions to unelected and unaccountable lawyers.

    Of course, much of the real action is clearly expected to be in public procurement with an aim to reduce barriers by 50%. What does that mean in practice? Obviously no-one is saying but I suspect it means that council schemes to favour local suppliers will be ruled illegal and that it will be open day on the NHS where, entirely coincidentally (or perhaps not) enabling legislation has just been passed.

  • The big problem is transparency.

    As somebody has just tweeted from the INTA trade committee of the European Parliament:

    “#DeGucht makes absolutely clear what he really thinks the citizen’s role in #TTIP is. He despises,ignores them & @EU_TTIP_team sells it.”

    This agreement is fundamentally about how regulators are allowed to regulate. That is something that should be discussed in public, with every last dot and comma up for review — not a single take-it-or-leave-it up/down vote on the whole package,

    Even if the adjudicator conflict-of-interest issue can be solved in ISDS, and ISDS replaced with some improved son-of-ISDS, we need to face the prospect that every last clause of this agreement could be litigated for “loss of anticipated profits”.

    It’s not good enough for it to be cobbled together in a back room, with the public locked out, and even member states and MEPs unable to take notes, discuss, or have mobile phones with them, able to access the texts only in controlled reading rooms.

    That’s not scrutiny, not a good way to make sure the text is properly second guessed, nor that it properly takes into account community, environmental, access-to-knowledge, consumer, privacy and all other interests apart from just those of the biggest producers.

  • JH – absolutely agree. Any agreement that cannot stand public scrutiny is unacceptable. Period.

    To get an idea of just how badly these agreements can go I recommend this post by Timothy Wise.

    http://triplecrisis.com/how-beer-explains-20-years-of-naftas-devastating-effects-on-mexico/

    He explains how NAFTA, which promised a golden future for Mexico, has in fact been a disaster – a disaster that is for ordinary people and any sensible conception of the economy. Of course, for large agribusinesses and financial speculators it’s been just wonderful.

    Nor are these agreements really about free trade of any description. The TPP (and therefore by extension the TTIP) is specifically intended to exclude China to preserve US influence against its growing strength.

    Whatever happened to the alleged Lib Dem commitment to ‘transparency’? Right now it’s looking like just another warm and fuzzy sounding thing to promise before election time but forgot immediately afterwards.

  • John Ramsbottom 23rd Jul '14 - 1:48pm

    One of the inclusions in TTIP is agreement about free flow of internet data. Businesses appear to want to carve up the internet into fast and slow lanes so that they can charge more for certain types of data (eg streaming videos depending on which company is providing the service).
    Large multinationals are already using trade agreements to take countries to court if they pass laws that reduce the profits that company makes. ISDS needs to be removed from TTIP. TTIP itself should be public, not restricted to business people and politicians.

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