TTIP – What’s the deal?

Emily Lydgate
Emily Lydgate

When it comes to the negotiation of trade agreements like the EU–US Transatlantic Trade and Investment Partnership (TTIP), knowledge is certainly power. The treaty text currently being negotiated by the European Commission is not publically available. Nonetheless, the Commission has declassified its negotiating mandate and made a vast amount of information available on its website, hitting, it claims, a new high for transparency. Some of the text has been leaked. There is quite a bit of information, and misinformation, out there. The problem is making sense of it. Toward this end, this post provides an overview of some of the key issues. The aim is to connect the dots between the technical documents provided by the Commission and statements of protestors which are strong on message but sometimes sparse on details.

What is TTIP?

TTIP is a trade and investment agreement currently being negotiated between the EU and the US. As well as liberalizing trade, it will introduce an Investor State Dispute Settlement Mechanism between the EU and the US (described below).

Transparency:

The Commission recently cited public concern as a justification to attempt a ‘fresh start’ in its approach to transparency, through making public many more of its positions and documents, including its Negotiating Mandate.

However, the draft treaty text is not available for scrutiny, nor are the EU’s ‘opening positions’ where it lays out its strategic goals. This is an issue of international relations with the US; confidentiality is seen as strategically vital on both sides. Therefore, while the EU claims that it will not relax its regulatory standards (see below), there is no way of confirming how this is made manifest in the text.

Benefits and risks:

Governments’ commitment to trade liberalization is underpinned by economic models that promise greater prosperity and economic growth through freer trade. The EU’s economic assessment estimates that TTIP will result in an increase of 28% in exports from the EU to the U.S. and 37% in the other direction. Consumers benefit from cheaper prices and more choice. Businesses benefit from greater market access and investment protection. This, however, also leads to public suspicion that TTIP will serve business interests rather than public interest by lowering standards and reducing public health and environmental regulation in order to enable free movement of goods, services and investments. There are also concerns that the dispute settlement mechanism which enforces the treaty overrides domestic laws and courts.

Trade aspect – GMOs and beef hormones:

Both the US and the EU belong to the World Trade Organization, but WTO negotiations have not been progressing, leading the EU and the US to pursue deeper trade integration through TTIP.

Trade liberalization has several dimensions. One of these is reducing costs applied at the border, like import tariffs. However, the EU and the US, like most highly-developed countries (or in the former case country blocs), do not have very high tariffs. TTIP, if successfully concluded, will likely include some tariff reductions, but this is not the main point.

Another component of trade liberalization is to reduce trade-restrictive regulation that prevents or complicates US products from entering the EU, and vice-versa. This is the main strategic objective of TTIP.

The main question is whether, and to what extent, regulatory coherence will lead to regulatory convergence. The EU, unlike the US, follows the precautionary principle. This means it is much more circumspect about approving Genetically Modified Organisms (GMOs), and prohibits using growth hormones in beef, for example. As the Commissioner for Trade Cecilia Malmström reiterated in February, the EU has promised that it will not weaken its standards on beef hormones and GMOs. Instead, the emphasis is on ‘cutting red tape’. In other words, the negotiations focus on areas where the standards are comparable, but a lack of mutual recognition creates hassles for exporters.

Given how clearly and repeatedly the EU has affirmed that it will maintain standards in the key areas of GMOs and beef hormones, backing down would constitute an admission of weakness and seems unlikely. However, the concern is that there might be a slip in standards in other, less high-profile areas in which the use of particular pesticides, hormones or manufacturing procedures permitted in the US is currently banned in the EU. Alternatively, there could be a move away from highly trade-restrictive measures, like import bans, and toward voluntary, consumer-driven regulation, like labels. This would mean that previously banned products would circulate in the EU market. Despite its assurances to the contrary, the Commission may well see some compromise as worthwhile in order to achieve the increases in market access that the TTIP will bring for EU products in the US. Time will tell.

Investment aspect – threatening the NHS?

Bilateral and multilateral investment treaties are legal instruments which provide foreign investors with legal protection through, for example, the right to fair and equitable treatment, and the right not to be directly or indirectly expropriated. BITs also contain clauses giving access to dispute settlement for redress against host states, in case of breaches of protection. In Investor State Dispute Settlement (ISDS), an investor can make a claim directly against the host state, which is resolved not through domestic courts, but in an international ad hoc tribunal. An earlier post in this blog well illustrates some of the key issues of importance with respect to ISDS in the TTIP.

Public awareness about ISDS recalls the WTO in 1999, when it went from an obscure, technocratic treaty to the subject of the ‘Battle in Seattle’. Similarly, bilateral and multilateral investment treaties have been ongoing for some time; indeed, there are currently well over 2,000 of them. Only recently have they been the subject of such public scrutiny.

It is quite interesting that the EU and US, as highly developed countries, have inserted an ISDS mechanism in the TTIP. Historically, the vast majority of bilateral investment treaties were between developing country ‘host states’ and developed country investor states. To be blunt, the implication was that these developing countries did not have a robust or fair enough domestic legal system to guarantee the investments.

An ISDS mechanism in an agreement between two highly developed country blocs will be an interesting experiment to watch. One possibility is that it will end up being nothing more than a footnote; foreign investors will be satisfied to rely upon ‘host state’ domestic courts applying domestic law. The second is that either the EU and the US, or both, will use the ISDS mechanism aggressively. The US has a bad reputation for aggressiveness, as demonstrated in the popular programme ‘Last Week Tonight’, which brought to the public attention how US tobacco companies pursued ‘justice’ against plain packaging laws through, for example, changing the location of corporate headquarters to countries in which they had better investment treaty protection.

In the TTIP context, particular concern has focused on how commitments to liberalize trade in services, coupled with the ISDS mechanism, might threaten public services such as the UK National Health Service. For example, if NHS services are provided by US companies, but the UK decides to re-nationalize them, there could be scope for a claim that the US investment has not been treated fairly.

Again, the Commission has taken pains to reassure the public that EU public services will not be threatened by TTIP. However, a leaked chapter of the draft agreement reveals that the NHS is not listed as a specific exemption which has led to increased calls for making this protection more explicit.

Timing:

The TTIP negotiations have been ongoing since July 2013. The timing of their conclusion much depends on the US Congress and on the election cycle. In the US, it is notoriously difficult for trade agreements to be approved by Congress, and the fast track Trade Promotion Authority expired in 2007. It is widely believed that there will be no progress until Congress passes the TPA again, as the Executive Branch currently has little authority to commit to TTIP. This leads to the question of President Obama’s strategic priorities and whether he will attempt to introduce the bill to Congress before the end of his term. The current dysfunction in the relationship between Obama and the US Congress, and the fact that the US is concurrently negotiating a more strategically important trade and investment agreement, the Trans-Pacific Partnership, lends an element of uncertainty to the process.

Dr Emily Lydgate is a Lecturer at the School of Law, researching trade liberalisation and environmental policy