TTIP – Frequently Asked Questions
Currently, trade relations between the EU and the US are subject to the rules of the World Trade Organisation (WTO), which date back to 1994. The WTO relies on a set of multilateral agreements, which apply to most countries in the world (currently 160). An ambitious reform of the WTO known as the Doha Round was attempted from 2001, but negotiations collapsed in 2008 and the process has been at a standstill since.
Countries that have wanted to develop trade further had therefore to bypass the WTO and resort to bilateral or plurilateral trade deals. The EU has in recent years done trade deals with countries such as Korea, Colombia, Peru and Canada. Negotiations are on-going with many others, such as India or ASEAN countries. TTIP takes place in this context.
If negotiations with the US are successful, the resulting agreement would be the largest ever bilateral trade deal as the EU and the US account together for over half of all global production, and a quarter of all global trade (24% of world export and 27% of world import).
Negotiations are conducted exclusively by high level civil servants. In the EU, officials from the Trade Directorate General (DG TRADE) of the European Commission are responsible for all trade negotiations. They answer to the Trade Commissioner, who is politically responsible before the European Parliament and member States’ Trade Ministers, including Lord Livingston for the UK.
The EU trade negotiators operate on the basis of a binding mandate they have received from the Head of States and Government of the European Union. For TTIP, the mandate was adopted on 17 June 2013, and published on 9 October 2014.
The way these negotiations are conducted is that nothing is agreed until everything is agreed. So we will not know for sure what is in TTIP until the moment the negotiations are concluded.
The Commission’s mandate provides the only definite indication to date regarding the scope of the agreement. The mandate instructs the Commission to negotiate an “ambitious, comprehensive [and] balanced” agreement on trade and trade-related areas. The mandate further specifies that the agreement shall contain measures on trade in goods and services (but not including currently publicly-funded public services), investor protection (including an Investor-State Dispute Settlement, or ISDS), public procurement, intellectual property rights and so-called ‘regulatory issues and non-tariff barriers’, which are the obstacles to trade resulting from unnecessary and incompatible rules and standards. The mandate further specifies that TTIP should safeguard all necessary rules and standards with respect to health, safety, consumer, labour and environmental protection and cultural diversity.
In addition, we can also derive information that can be relevant for TTIP from similar trade deals. In particular the recently concluded agreement with Canada (the ‘Comprehensive Economic and Trade Agreement’ or CETA) has been presented as a blueprint for TTIP and as such can provide some insight on the Commission’s stance on certain issues, such as investor protection or public services.
Far more needs to be done to ensure an adequate level of transparency. In particular, there are no tactical reasons to continue keeping away from the public the proposals (‘offers’) that were made by the EU to the US, in particular on services. Labour MEPs have asked in this respect the Commission to publish the list of all services that are up for discussion in the negotiations.
At the request of Labour MEPs, the new EU Trade Commissioner committed at her confirmation hearing in the European Parliament to increase transparency overall. She mentioned specifically greater access to documents for MEPs only. Since MEPs are bound by confidentially rules when they acquire restricted information, this would not be sufficient to ensure an informed public debate. Labour MEPs have repeatedly called for greater public disclosure, and will keep pushing the Commission to deliver on it. The Commission is expected to announce concrete measures in this respect on 25 November 2014.
This general exemption does not however exclude public services that have already been put out to tender and are therefore not publicly funded anymore. And it does not fully guarantee that EU national governments would retain the right to nationalise or renationalise services, because of the inclusion of ISDS (see below).
Labour MEPs are extremely critical of this approach, as it is much more ambiguous than the traditional positive listing approach that the EU has been using thus far. Negative listing imposes to anticipate and plan for all scenarios, such as a possible renationalisation of the NHS by a future Labour government.
Labour MEPs have therefore been actively seeking to secure comprehensive exemptions to ensure that all public services, including public services that were privatised under the 2012 Health and Social Care Act, are excluded from TTIP. The exemption must in particular cover health, social services and education in both annex I (exclusion for currently publicly funded public services) and annex II (exclusions that can be maintained or introduced in the future). Only the UK government can ask for UK-specific exemptions.
Once the agreement is finalised, we will analyse very carefully the exemptions obtained and take our decision on whether or not to support TTIP on this basis.
The EU first negotiated such investor provisions in CETA. This agreement is the first concluded between developed countries containing an ISDS. Another recent trade deal with Singapore also contains an ISDS. The Singapore and Canada agreements, which both await ratification, provide an indication on the European Commission’s stance with respect to TTIP. The Commission has furthermore carried out a public consultation on ISDS over the summer of 2014. It is expected to respond to the consultation by the end of the November.
The rationale for investment protection provisions in trade deals is that foreign investors are at risk of being treated unfairly as international law does not offer sufficient guarantees in this respect. ISDS is therefore seen by the European Commission as an instrument to protect EU investors abroad and create an incentive to foster foreign investment in Europe. Investment chapters in recent EU trade deals set out specific rights for foreign investors, such as protection against expropriation and discrimination. They also create a litigation mechanism, ISDS, to resolve conflicts when they arise and enforce the investment protection provisions contained in the agreement. ISDS is a private arbitral tribunal which is fully independent from the governments and the legal systems of both parties to the agreement. Typical ISDS tribunals are made up of three judges: one appointed by the claimant, one by the defendant, and one by both. ISDS judgements are binding, and they can lead to fines.
It grants different rights and create a different jurisdiction for foreign investors compared to domestic investors, which can result in unfair competition. It is also more open to abusive claims and disproportionate judgements than a mature legal system, as the rules laid out in investment chapters of trade deals can never be as comprehensive as domestic law and related jurisprudence. Such abusive claims could hinder public authorities’ ability to implement policy change and to regulate the economy, either directly through ISDS rulings or indirectly through procedural threats.
ISDS furthermore lacks transparency, as it is not subject to normal judicial proceedings rules. It is at risk of conflict of interest and corruption, due to the number of judges, the narrow pool of international layers from which they are selected, and the total absence of democratic scrutiny of the process.
For instance, a Canadian investor would have to have ‘substantial business activities’ in Europe in order to have access to ISDS. This clause would therefore make it impossible for shell companies to abuse the system. Rules governing the treatment of expropriation have also been tightened. A government in the EU would be allowed to take a policy measure that would result in expropriating a foreign investor’s property if it is for a public purpose, under due process of law, in a non-discriminatory manner and against payment of “prompt, adequate and effective compensation”, which could be no greater than the value of the investment. New regulations to protect legitimate public welfare objectives, such as health, safety and the environment could not be attacked under ISDS. Transparency would also be vastly improved.
But ultimately ISDS remains a system based on private justice, intended as a substitute for democratic jurisdictions. The legal safeguards introduced in the agreement with Canada and Singapore, such as the concept of “legitimate public welfare objectives” would remain subject to the interpretation of judges lacking any legitimacy and accountability. The reformed ISDS would also create new loopholes, such as granting legal value to investors’ “legitimate expectations” about investment prospects.
ISDS would effectively create a two tier legal system, in which different sets of rules would apply to multinationals on the one hand and small firms on the other, as access to arbitration is dependent on resources. And ISDS could still be used as an instrument to coerce the EU or national governments, politically if not legally.
Labour MEPs recognise these flaws and see no reasonable justification to include ISDS in a future TTIP agreement, or other EU trade agreements with advanced economies. It is unnecessary in such cases, as foreign investors can rely on the investor protection already provided for in every mature legal system. The Chair of the International Trade Committee of the European Parliament clearly stated that the Socialists and Democrats Group, of which the Labour Party is a member, would not support TTIP if it contains ISDS.
Harmonisation and mutual recognition does not necessarily imply a weakening of standards. Major gains can be obtained in aligning or mutually recognising high quality technical procedures, such as car safety or drug tests specifications. The Commission has a very clear mandate in this respect and it is not allowed to agree on any lowering of our environmental, labour, occupational health and safety legislation and standards. As far as labour standards are concerned, Labour MEPs are deeply concerned about the fact that the US has not ratified ILO conventions. The European Parliament is monitoring closely developments on these matters, and Labour MEPs will judge the final text on its merits.
The Commission mandate is fairly vague on the issue of on-going regulatory cooperation, although it has presented this issue as a major objective for the EU. The risk here is that TTIP enables built-in mechanisms that could create new regulations or weaken existing ones without appropriate democratic vetting. We are opposing any such clause and will carefully analyse the EU and US offers as soon as they are tabled.
EU law provides for stringent authorisation procedures for Genetically Modified Organisms (GM), and leaves EU member States the possibility to impose a partial or a complete ban on GM cultivation. The Commission has made it very clear that these rules are not up for discussion in the frame of TTIP, and Labour MEPs will pay close attention that no extra quotas are granted to the US for GM products.
As for foodstuff coming from clones and their offspring, the Commission has just tabled a draft law banning the import of such products in the EU. Any deal on TTIP will have to be fully consistent with this approach.
Regarding other controversial production methods, such as hormone-treated beef or chlorine- washed chicken, the EU’s stance has always been extremely clear. These methods have been banned in the EU, and the European Commission has been holding its ground at the WTO in numerous dispute settlement cases over the years. During his confirmation hearing in the European Parliament, the new Health and Food Safety Commissioner said that he would never compromise on this issue. All of these matters are absolute redlines for Labour MEPs.
For instance the EU-Korea agreement, which has been in force since July 2011, resulted in an increase in EU exports to Korea by over one third. As a result, while Korean imports in the EU used to outweigh EU exports to Korea by £6 billion before the agreement came into force, the EU recorded a £2.9 billion trade surplus with Korea in the year up to July 2014. Sectors such as machinery and appliances, transport equipment and chemical products have all gained significantly from the Korea agreement. The EU exports of cars to Korea have increased by 90% in three years. In geographical terms, the UK has been the biggest winner from this trade deal within the EU, its exports to Korea having increased by 125% in that period. All of this new trade translates into new economic activity and ultimately new jobs.
The impact of CETA is also expected to be positive for the European economy if it is ratified, in particular in the agriculture sector. The EU obtained major concessions from Canada such as the protection of 145 European geographic indications, and only conceded limited market access improvements to Canada in return. CETA will also open unprecedented access to public procurement in Canada to EU companies.
It is still too early to tell what the impact of TTIP would be, as it largely depends on the specific content of the future agreement. The Commission argues that a comprehensive agreement could increase EU exports to the US by up to a third, with sectors such as motor vehicles, metal products, processed foods, chemicals and manufactured goods all making large gains and no sectors recording loses. But economic estimates are often made on the basis of theoretical models that assume full employment, and are to be taken with caution.
The outcome might therefore not be as positive, and the Commission’s favoured figures have been contradicted in many independent studies. Regardless how large TTIP’s contribution to the economy is, it has to be welcomed provided that the benefit to growth and jobs is not outweighed by negative consequences. This is why we insist on maintaining our standards, removing ISDS and excluding public services.
Ensuring a level playing field in relation to labour standards is just as crucial to prevent social dumping and unfair competition, which could in turn have a negative impact on job creation, wage levels and the quality of employment in Europe. Labour rights are much weaker in the US than the EU and the Commission must ensure that TTIP fully addresses this situation.
We are also concerned about potential distributional effect of TTIP. They have to be carefully anticipated in order to be mitigated, but it is still too early to tell whether such distributional effects could occur and if yes in which sector. In the event that some sectors are negatively affected by the deal, the EU has financial tools to support workers affected such as the European Globalisation Adjustment Fund. Labour MEPs defend deploying and developing these instruments further where needed.
The Commission is yet to assess the economic impact of TTIP on developing countries. It committed in 2013 to carry out a sustainability impact assessment, but has not done so to date. Labour MEPs will keep pushing the Commission to follow up on this commitment.
Some studies have shown that TTIP would have a negative impact on developing countries’ volume of exports to the EU, as trade would be diverted away from them. The impact of TTIP would nonetheless entirely depend on its specific content, and is likely to be small due to the different composition of existing trade between the EU and the US on the one hand, and the EU and the US with developing countries on the other.
The conditions to which developing countries can export to the EU will not change as a result of TTIP. All Least Developed Countries (LDC) in the world benefit from duty-free quota-free access to the EU under the ‘Everything But Arms’ programme (49 countries in total). A further 10 ‘vulnerable economies’ that are not considered to be LDCs benefit from quota-free duty-free access for about 2 thirds of all tariff lines under the ‘Generalised Scheme of Preference +’ arrangement. 25 more are eligible to the scheme. The EU is furthermore engaged in negotiating trade agreements with a number of developing countries.