02 January 2016


The previous update detailed the massive rejection of ISDSin TTIP, even at the highest political levels in Europe.  That refusal to allow corporations to be placed above national law has now spread to the other major trade agreement that the European Commission is currently negotiating, the one with Canada, known as CETA.  Here's the bombshell that the German newspaper Süddeutsche Zeitung dropped over the weekend (original in German):

German EU diplomats confirmed in Brussels on Friday that the [German] federal government could not sign the agreement with Canada "as it is now negotiated." Although Germany was, in principle, ready to initial the agreement in September, the chapter on the legal protection of investors is however 'problematic' and currently not acceptable.

Now, it's important to emphasise that this is not saying that Germany will *not* sign CETA, as some have reported.  What it does indicate is that the current text is problematic.  That leaves open the possibility for modifications to be made that would make it acceptable.  But as we've noted before, Germany has already expressed its view that ISDS should not be in TTIP, and presumably feels the same way about CETA. 

Thus the new battle over CETA not only provides important hints about what will happen with TTIP, but will have a direct influence on it.  If CETA includes ISDS it will enable US companies to sue the EU through Canadian subsidiaries, thus making its presence or absence in TTIP somewhat moot.  Equally, if ISDS is dropped from CETA, it is likely to be dropped from TTIP.

That has become even more likely in the wake of this new statement by the S&D Group in the European Parliament:

Following reports in the press that the German government is reluctant to sign the EU-Canada Comprehensive Economic Trade Agreement (CETA) as it currently stands, the S&D Group calls for further efforts to conclude this agreement but invites the Commission to seriously consider withdrawing the investor-state dispute settlement clause from the final text. The inclusion of this clause seems to be the main controversial point in the CETA text for the German government.

That's significant, because the S&D Group is the second-largest in the European Parliament: TTIP will not be ratified there unless it's MEPs support it, and this is therefore a further signal that they won't support it if it includes an ISDS chapter.  The wisdom of that position was underlined just yesterday with the annoncement of the biggest award ever made by a tribunal of the kind that lie at the heart of ISDS:

In an historic arbitral award rendered on July 18, 2014, an Arbitral Tribunal sitting in The Hague under the auspices of the Permanent Court of Arbitration (PCA) held unanimously that the Russian Federation breached its international obligations under the Energy Charter Treaty (ECT) by destroying Yukos Oil Company and appropriating its assets. The Tribunal ordered the Russian Federation to pay damages in excess of USD 50 billion to our clients who were the majority shareholders of Yukos Oil Company.

Yes, you read that correctly: a tribunal of lawyers has decided that Russia ought to pay $50 billion damages (although whether it will is quite another matter.)  This is a useful reminder that there is literally no limit on the awards that these tribunals can make: the ISDS system is not just undemocratic, it is completely outside anyone's control - a recipe for disaster.

The other big TTIP news is the leak of one the key chapters, on "sanitary and phyto-sanitary measures" (SPS) - basically food safety and related areas.  Here's a summary of what it reveals:

The Institute for Agriculture and Trade Policy released the draft version of the central text of the TTIP chapter on sanitary and phyto-sanitary measures; this chapter imposes restrictions on government regulations related to food safety and animal and plant health. Among the many provisional threats to public health safeguards are:

A form of mutual recognition of the safety of imported food from Europe in the U.S. and vice versa that reduces standards to the lowest levels;

 An objective that food safety safeguards should generally be enforced in the least trade restrictive manner, rather than the manner that is most protective of public health and the environment; and

 A system of “exporter country certification” that would  sharply reduce food safety inspections at ports of entry.

That same Institute for Agriculture and Trade Policy (IATP) has also provided a detailed and illuminating analysis of what the dry text will mean in practice.  Here's the key section that describes the overall intent of the SPS chapter in TTIP:

trade agreement SPS language about food safety, animal health and plant health outlines the general terms for enabling trade while complying with “the importing Party’s appropriate level of protection.” So, for example, unless the European negotiators object to the use of Maximum Residue Level (MRL) of a specific pesticide on imported grain or a specific veterinary drug in the production of imported meat, without creating “unjustified barriers to trade” (Article 2, paragraph 2), the TTIP regards that product as having an “appropriate level of protection” to enable importation and consumption of the product. Determination of MRLs and other metrics of what is “appropriate” happens in a domestic regulatory process, in which, at least in the U.S., much of the relevant data is classified as Confidential Business Information.

This is the key change proposed by the TTIP draft: "mutual recognistion" would mean that US standards for pesticides or veterinary drugs would be regarded as acceptable in the EU, even when they are manifestly lower than those currently in place here.  As that paragraph also hints, the US regulatory process is pretty much a part of the US agricultural industry, which provides most of the data used for making regulatory decisions.

Not  only that, industry generally won't even provide the "scientific" data on which government decisions are based, since it is "Confidential Business Information."  Of course, when companies won't release data it's a clear sign that they have something to hide, as the experience with clinical trials data has shown.  When it comes to health and safety, open data is even more critical than elsewhere, but the US approach is diametrically opposed to this, with secrecy as the default.  This means that European efforts to make the regulatory process more open would be undermined by the US demand for business confidentiality for their standards, which would also apply in the EU.

In fact, the SPS chapter in the TTIP draft is even worse.  Not content with allowing food that meets US standards to be imported freely into Europe, it would stop checks being carried out on that produce as it enters the EU:

industry has long sought to replace verification of food safety management performance by port of entry inspection of products with export food facility certification, by governments or third parties, verified by audits of facilities. The terms of certification and auditing to verify SPS system equivalence are outlined in Article 12 of the draft. In Article 9, paragraph 1, industry, and particularly the Grocery Manufacturers Association, has gotten its wish to eliminate port of entry inspection and testing results as a factor in the SPS systems equivalence determination. According to the draft text, recognition of SPS systems as “equivalent” by TTIP Parties will occur “without a need for individual re-inspection [of products] or other additional guarantees.

There's an interesting consequence of removing the entry inspection:

The industry rationale for eliminating re-inspection and testing is not just to expedite more food trade more quickly. Detaching re-inspection and testing from SPS systems equivalence determination provides a layer of government verified and certified food safety management insulation from liability for exporting or importing contaminated products.

This means that the kind of food scandals we have seen recently - notably of horsemeat - would be much harder to investigate.  It would also remove incentives for US food companies to worry too much about the issue, since it would be much easier for them to escape any liability.

Finally, many in Europe will doubtless be worried by this aspect of the leadked SPS chapter:

“Prominent coverage of animal welfare” refers to “best endeavor” (we will try), not binding (“shall”) measures to prevent trade in livestock products from animals that have been abused. For example, Article 11, paragraph 1, states “The Parties recognize that animals are sentient beings. They undertake to respect trade conditions for live animals and animal products that are aimed to protect their welfare.” So, while this aspirational language is perhaps new in a trade agreement, it is designed to be unenforceable. There will be no requirements that Parties mandate compliance with animal welfare laws as a condition of being able to trade in animal agriculture products.

That means the opportunity to use TTIP to export Europe's higher animal protection laws to the US in order to mitigate some of the worst horrors of that country's "mega-farms" is being lost.  As a result, European farmers will be at big economic disadvantage compared to their US rivals, since they will be required to spend more money taking better care of their animals. 

This is likely to lead to European farms losing market share, as cheaper US food enters the EU, with no indication that it was produced in inhumane conditions, or that it contains pesticide levels that were previously unacceptable in the EU.  In the face of this unfair competition, the agricultural industry will inevitably push for EU standards for food safety and animal welfare to be lowered to those of the US in order to "level the playing field."  Moreover, whenever the US lowers them yet further - as it is currently doing for chickens - this will have a knock-on effect of pushing EU standards down too.  TTIP not only leads to a race to the bottom on food and health standards, it leads to that bottom being excavated to new depths.

As this indicates, the leak of the SPS chapter is extremely important, because it reveals in detail for the first time just how our food standards will decline, and that the repeated assurances from the European Commission that they will not, are worthless.  It's probably safe to assume that the same will prove to be true of the chapter dealing with intellectual monopolies like copyright and patents, which is likely to turn out to be ACTA 2.0.

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