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

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The Media and the Investor-State Dispute Settlement: TTIP of the Iceberg

Edward Guntrip
Edward Guntrip

Cross posted with permission from International Law Matters (originally posted 3 November 2014).

In the United Kingdom (UK), the mainstream and popular media have been reporting details of the proposed impact of the Transatlantic Trade and Investment Partnership (TTIP) between the European Union (EU) and the United States of America (USA) (see for example, articles from the Independent, the Guardian, the Telegraph and the Huffington Post). The TTIP is a trade agreement that is intended to minimise regulatory differences and remove trade barriers between the EU and the USA. The TTIP also seeks to open the market between the EU and the USA for investment and services. In the majority of stories discussing the TTIP, journalists and columnists have raised concerns regarding its potentially negative influence. There is apprehension concerning the possibility of increased privatisation of state-run healthcare services, the relaxation of environmental standards, and the introduction of food that does not comply with existing EU standards. Examples of these types of media reports can be found here and here. In addition, the media is warning the public about the threat of investor-state dispute settlement (ISDS) (see for example, here).

The potential impact of the TTIP on citizens of EU member states and the USA needs to be fully discussed, and a dialogue between all interested parties is to be encouraged. An open conversation could have easily been achieved had those negotiating the TTIP made the negotiating aims tipptransparent from the outset. However, the mandate setting out the negotiating directives was only made public in October 2014 after seven rounds of negotiations. Given the recent change in policy regarding the transparency of the negotiations, the main source of information regarding the TTIP for the vast majority of people, so far, has been through reports in the media. Therefore, it is unfortunate that the debate has been presented to the public by the UK media in an incomplete manner. This practice has been most prevalent when the UK media discusses ISDS.

ISDS was established as an alternative dispute resolution forum for disputes over foreign direct investment (FDI). It was initially intended to provide a neutral forum for investment disputes. Foreign investors did not want to take the political risk of submitting disputes to a court that was likely to favour the interests of the state in which it was located. Hence, dispute settlement proceedings were held outside of domestic legal systems to avoid perceptions of bias and were adjudicated by experts rather than judges.

As it currently stands, the TTIP proposes that ISDS should be the primary form of dispute settlement for investment disputes that arise under the instrument (although this could change based on recent statements made by the new EU Commission President, Mr. Juncker). The adoption of ISDS in the TTIP created a flurry of resentment in the UK media given the ‘secretive’ nature of ISDS. Further, the public are being warned that ‘corporate lawyers’ decide these disputes. Rather than being seen as a neutral forum, ISDS is being portrayed as a forum that inherently favours corporate foreign investors. These allegations only constitute one perspective on the operation of ISDS. ISDS is becoming increasingly transparent. For example, in 2006, procedures were introduced into ISDS governed by the ICSID Arbitration Rules to enable non-disputing parties with an interest in the dispute to make submissions to an arbitral panel. Further, the recent development of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration creates a means by which the public can be made aware of investment disputes. ISDS is not solely the domain of corporate lawyers. Decisions are made by international investment law experts who, in addition to corporate lawyers, include public international lawyers and advocates. Finally, empirical evidence from 2007 suggests that foreign investors win their claims only 40% of the time when they use ISDS to resolve their disputes. This dispels the notion that ISDS is weighted towards foreign investors. This material is not discussed by the UK media in their reports on the TTIP.

Whilst aspects of the TTIP’s ISDS clauses leave a lot to be desired (see, for example, the submission of around 120 academics, supported by this author, to the EU Commission highlighting some key difficulties) the procedures envisioned do not differ substantially from ISDS available in other international investment agreements (IIAs). The key protections offered to foreign investors remain largely the same. What is frustrating about the media’s portrayal of ISDS in relation to the TTIP is that, prior to the TTIP, nine EU member states were bound by IIAs with the USA that provide for ISDS (being Lithuania, Croatia, Latvia, Estonia, Bulgaria, Romania, Czech Republic and Poland). Despite the current applicability of ISDS to investment disputes between the USA and approximately one third of EU member states, the media has mentioned none of the nine existing IIAs. By failing to mention these IIAs, the UK media is not disclosing that ISDS already operates in some EU member states in broadly similar terms to those proposed in the TTIP. This is not to suggest that the current application of ISDS to some EU member states justifies the inclusion of ISDS in the TTIP. Rather, it highlights that only the TTIP is being demonised in the media.

The media’s concern regarding the use of ISDS in the TTIP seems hypocritical when both the USA and EU member states (including the UK) insist on the same protections when their investors undertake FDI in a foreign state. In many instances, ISDS governs FDI disputes between EU member states. What the UK media presents as threatening, intrusive and secretive is actually common practice and is seen as a means of protecting UK based investors. Yet, when ISDS is discussed in the context of the TTIP, according to the UK media, it becomes unacceptable. There are arguments that could be discussed that militate against the use of ISDS in the TTIP. Both the USA and EU member states are likely to provide a neutral forum for investment disputes, reducing the need to refer disputes to ISDS in order to avoid potential bias (a discussion of these arguments can be found here). However, this argument has not been put before the public. Instead, the TTIP is being targeted by the media as the source of the problem without considering the wider context in which ISDS operates and the broader purpose of ISDS (set out above).

The point of this post is not to promote the TTIP or to prevent discussion regarding the virtues (or otherwise) of the TTIP and its ISDS provisions. The TTIP should be scrutinised in the same manner that any international agreement that affects a state’s citizens should be examined. However, the manner in which the UK media has presented the TTIP and its ISDS provisions is skewed. As the media remains the key source of information for the general public regarding the TTIP, reporting should be more balanced and nuanced.  In particular, solely focusing on the TTIP draws attention away from the widespread practice of ISDS. Further, the presentation of one-sided arguments distorts public perceptions of international investment law. Therefore, it is suggested that it would be more beneficial to have an open and informed debate regarding ISDS more generally. Any reforms could be implemented on a larger scale, rather than focusing on one instrument that has happened to catch the media’s attention. After all, the TTIP is only the tip of the iceberg.

Dr Edward Guntrip teaches international investment law at Sussex Law School.