TTIP Update X

Last week I wrote about an attack on Corporate Europe Observatory (CEO) by the European Commission over a leak concerning TAFTA/TTIP, which the former had obtained and published.  As my lengthy analysis indicated, what was most remarkable about that response is that it failed to answer the points made by CEO.  That naturally begs the question: so why did the European Commssion bother?

I think the answer is clear.  It was rattled that CEO had revealed its emerging plans to use a new supranational regulatory body to gradually replace the European precautionary system with one that is optimised for profits.  That meant it needed to try to "prove" it wasn't really happening – something it signally failed to do.  More generally, its extremely rapid response shows that the European Commission fears that it is losing control of the TAFTA/TTIP narrative, which is supposed to be all about growth, jobs, profits and happiness sempiternal.

That view is bolstered by the fact that no less a personnage than Karel De Gucht, the European Commissioner for trade, and the person with overall responsibility for the TTIP negotiations, entered into battle himself to rebut an article by George Monbiot in the Guardian.  Monbiot's piece was entitled "The lies behind this transatlantic trade deal", and it rightly concentrates on the threat posed to national and European sovereignty by investor-state dispute resolution (ISDS), and on the extraordinary and unnecessary secrecy:

Panic spreads through the European commission like ferrets in a rabbit warren. Its plans to create a single market incorporating Europe and the United States, progressing so nicely when hardly anyone knew, have been blown wide open. All over Europe people are asking why this is happening; why we were not consulted; for whom it is being done.

De Gucht did not like this:

George Monbiot, in his article on the negotiations for a Transatlantic Trade and Investment Partnership, claims the European commission has tried to "keep this process quiet" (Chickens in chlorine? It's what free trade's about, 3 December). This is laughable. Every step of these negotiations has been publicly announced and widely reported in the press. The commission has regularly consulted a broad range of civil society organisations in writing and in person, and our most recent meeting had 350 participants from trade unions, NGOs and business.

Well, I suppose you have to admire the bare-faced cheek of denying reality.  As far as I can tell – and I do follow this area pretty closely - there have been no "regular" consultations with civil society organisations; in fact there have been vanishingly small meetings with them on any basis.  As CEO found out (but only by demanding the information under a FOI request), of 130 "meetings with stakeholders" that took place earlier this year, 119 of them were with large corporates and their lobbyists.

And note the clever phrasing: "Every step of these negotiations has been publicly announced and widely reported in the press."  That's true – the *steps* have been announced, but we have been told nothing about what was discussed.  That's like claiming that people have been able to read books even if all they were told were the titles.

Interestingly, the evidence that ISDS is a real danger to democracy is now so strong, that even De Gucht is forced to admit it:

We do understand some of the concerns Monbiot and others have about investor-state dispute settlement. We are well aware of the cases he cites, including the "nuclear company contesting Germany's decision to switch off atomic power" and the fact that "the tobacco company Philip Morris is currently suing Australia [which introduced plain packaging for cigarettes] through the same mechanism in another treaty". That is why we want the EU-US trade deal to fully enshrine democratic prerogatives.

That's a pretty big admission, and shows the power of facts to combat empty rhetoric.  Alas, the "solution" offered is the usual one:

EU investment agreements will explicitly state that legitimate government public policy decisions – on issues such as the balance between public and private provision of healthcare or "the European ban on chicken carcasses washed with chlorine" – cannot be over-ridden. We will crack down on companies using legal technicalities to build frivolous cases against governments. We will open up investment tribunals to public scrutiny – documents will be public and interested parties, including NGOs, will be able to make submissions. Finally, we will eliminate any conflicts of interest – the arbitrators who decide on EU cases must be above suspicion.

Notice the verb here: "will" – designed to convey absolute certainty.  Except that TAFTA/TTIP is a two-sided agreement, and the EU is in no position to demand anything.  I don't doubt that it will indeed ask for all the things listed above in an attempt to address the criticisms of ISDS (not that it will, but at least it is trying); however, I also don't doubt that the US negotiators will simply refuse, since overcoming "the European ban on chicken carcasses washed with chlorine" is one of their stated aims in TAFTA/TTIP.  That's precisely why they want ISDS in the agreement, and precisely why the European Commission would be insane to agree to its presence.

Despite admitting that ISDS is inherently problematic, De Gucht goes on to say:

But we do not take Monbiot's extreme view that investment protection agreements (IPAs) are "toxic" attempts to put monster corporations in charge of our destinies. His exaggerated fears are no reason to abandon a deal with the US that could create £100bn in new growth for Europe. (Contrary to Monbiot's claims, the economic impact of free trade agreements has been positive. For example, Europe's agreement with South Korea has seen our exports rise by 24% in its first two years.)

Readers of this blog will recall my earlier analysis of that £100bn, which is the 119 billion euros that appears in the research carried out for the European Commission.  In any case, it represents the best-case  outcome of TAFTA/TTIP, and this will only be achieved through massive deregulation, with a concomitant lowering of health, food and environmental standards, despite what the Commission claims.  So even if TAFTA/TTIP "could" create £100bn in new growth for Europe, that would only be in 2027, and at huge social cost – something that De Gucht naturally omits to mention.

He also fails to note another salient fact when he writes that Europe's free trade agreement with South Korea saw a 24% rise in exports in its first two years.  According to the European Commission's own Web pages on the agreement:

European companies are the largest investors in South Korea.

That's relevant to TAFTA/TTIP, because the key argument for including ISDS in the transatlantic deal is that such investor protection is vital if companies are going to invest in Europe and thus create jobs.  The interesting thing is that the trade agreement between Europeand South Korea does not have an ISDS chapter, and yet Europeans are happy to invest massively in the latter country.  Why on earth would they risk doing that? Simple: because they trust the legal and political systems to act fairly in the case of any disputes over investments.

It is the height of ridiculousness to assert that ISDS is needed in TAFTA/TTIP in order to provide the same guarantees: the legal and political systems in both the EU and US are certainly as well developed as those in South Korea, and so ISDS is completely unnecessary.  As George Monbiot in his Guardian article quotes me as saying on the subject: "The benefits are slight and illusory, while the risks are very real."  Accepting large risks for small benefits shows appalling business judgement: if De Gucht can't see that, and won't drop ISDS in order to protect Europe from those dangers, perhaps he should hand the job on to someone who does and will.

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TTIP Update IX

As the calendar year draws to a close, you might expect the world of trade agreements like TAFTA/TTIP to be shutting down too.  Surprisingly, though, that's not the case.  The last few weeks have seen more activity and revelations than any so far.   In fact, so much has been revealed in the last few days that it will take several updates over the next week or two to explore the implications.

First of all, let's look at an astonishing attack on Corporate Europe Observatory, the group that obtained the important leak about the proposed TAFTA/TTIP Regulatory Council, which I discussed in my previous  TTIP Update.  The post comes from the EU Trade Spokesman John Clancy, and the fact that the European Commission felt moved to publish it speaks volumes about its increasing nervousness: you don't resort to such tactics if you're feeling confident of your position.  Here's how it begins:

Anti-trade and anti-business lobby group Corporate Europe Observatory (CEO) have scored an own goal with their latest claims against the Transatlantic Trade and Investment Partnership (TTIP). The only thing the latest so-called 'leaked document' published by CEO reveals is confirmation of what the EU has been saying all along; namely that any future deal between the EU and the US will 'reaffirm their [EU Member State governments' and the US government's] sovereign right to adopt new regulatory initiatives, to regulate in pursuit of legitimate public, policy objectives and to ensure that their laws and policies provide for and encourage high levels of environmental, health, safety, consumer and labour protection.'

"Reaffirming" those things doesn't really do much.  If a US company uses the investor-state dispute settlement (ISDS) provisions that are currently in TAFTA/TTIP, to sue the European Union, and the ISDS tribunal upholds the claim, the EU and national governments can "re-affirm" their rights as much as they like, but they will still be expected to pay up, and the US government will doubtless support that decision.  The point is, the tribunal may not agree, and can't be forced to follow any supposed EU line, because it is inherently above national or even European laws - that's the problem.

Here's the next section from Clancy:

Furthermore, the so-called 'leaked document' reflects almost in its entirety the EU's initial position paper already made public in July 2013 and available on-line. This sets out how the EU and US could work more closely together, and more openly, when drawing up future regulations. The changes are designed simply to make future regulations more effective and efficient for both business and consumers – nothing more, nothing less.

So here's what that position paper has to say on the subject:

A body with regulatory competences (a regulatory cooperation council or committee), assisted by sectoral working groups, as appro priate, which could be charged with overseeing the implementation of the regulatory provi sions of the TTIP and make recommendations to the body with decision-making power under TTIP. This regulatory cooperation body would for example examine concrete proposals on how to enhance greater compatibility/conver gence, including through recognition of equiva lence of regulations, mutual recognition, etc. It would also consider amendments to sectoral annexes and the addition of new ones and encourage new regulatory cooperation initia tives. Sectoral regulatory cooperation working groups chaired by the competent regulatory authorities would be established to report to report to the regulatory cooperation council or committee. The competences of the regulatory cooperation council or committee will be without prejudice to the role of committees with specific responsibility on issue areas such as SPS.

In other words, it's largely about overseeing the implementation of TTIP, not going beyond it.  Clancy also writes the following:

details of this [Regulatory Council] along with a broad explanation of the regulatory ambitions of the future TTIP agreement were announced by EU Trade Commissioner Karel De Gucht on 10th October in a speech to the Aspen Institute in Prague

Here's what De Gucht said then (.pdf):

I therefore propose that th e TTIP establishes a new Regulatory Cooperation Council that brings together the heads of the most important EU and US regulatory agencies.

The council would monitor the implementation of commitments made and consider new priorities for regulatory coopera tion - also in response to proposals from stakeholders. In some cases it could also ask regulators or standards bodies to develop regulations jointly that could then have a good chance of becoming international standards.

Notice again how passive the Regulatory Cooperation Council (RCC) is there: it would "monitor" implementations, "consider" new priorities, and "in some cases" ask regulators to come up with something new.  Contrast that with what we read in the CEO leaked document (.pdf):

The functions of the RCC will include inter alia:

Considering and analysing, with the help of the relevant working groups substantive joint submissions from EU and US stakeholders or submissions from either Party on how to deepen regulatory cooperation towards increased compatibility for both future and existing regulatory measures;

The RCC may be assisted by sectoral ad hoc working groups. In the domain of financial services the functions of the RCC to monitor, guide the cooperation and to prepare the yearly Regulatory Programme will be assumed by a competent sectorial body established by the TTIP.

Specific modalities will be established for interaction of the RCC with legislators (US Congress and the European Parliament). The RCC should interact with stakeholders, including business, consumers and trade unions. For this purpose a EU-US multi-stakeholder advisory committee or similar body should be established that would regularly meet with and work with EU competent authorities and US regulators in crafting regulatory measures or taking decisions how to further compatibility of existing one (e.g. through mutual reliance, recognition, etc.).

Suddenly the RCC has become an active participant in the formulation of new regulations, interacting directly with legislators on both sides of the Atlantic, and even "crafting regulatory measures".  That's the key change the Clancy chooses to ignore, because it reveals the first outlines of the European Commission's emerging plan to give big business the deregulation it is demanding, but without making it too obvious by enshrining it in TTIP itself for all to see.  Instead, health and safety regulations on both sides of the Atlantic will be swept away – sorry, made "compatible" – through a very gradual process brought about by the dull-sounding  Regulatory Cooperation Council that will in fact effectively veto regulatory changes in favour of the public, which diminish corporate profits.  This will introduced a regulatory ratchet that ensures new laws and rules are always in favour of companies, just as the copyright ratchet ensures that changes to law are always in favour of copyright companies, never the public.

Clancy's last paragraph is as follows:

The EU welcomes an open public discussion on TTIP including the important input from civil society including all stakeholders whether NGOs or business. Unfortunately, CEO only does a disservice to this important discussion with misleading and exaggerated claims once again. Since the launch of EU-US discussions, the EU Commission has welcomed an open public debate but such a debate should be based upon the facts and not the spin.

The European Commission has not invited "open public discussion" -- I challenge it to point out any occasion when the public was invited and able to discuss TTIP with the Commission in any meaningful way – occasional sessions held after negotiating rounds do not count.  The only serious discussions that have been taking place are with big business.  We know this for a fact thanks to a Freedom of Information request from CEO, which found that of the European Commission's 130 "meetings with stakeholders" that took place earlier this year, 119 of them were with large corporates and their lobbyists. 

And for the European Commission to accuse CEO of "spin" is astonishingly hypocritical.  Here, for example, the headline that Clancy used for his post:

Anti-Trade lobby group CEO scores own goal on latest TTIP 'revelation'

But as CEO points out in its own rebuttal, it is not "anti-trade", as its actions prove:

Corporate Europe Observatory has been a part of an effort for years to develop an alternative trade policy. We’ve done that in collaboration with a broad variety of social movements and NGOs, and only a few weeks ago, we were part of launching the Alternative Trade Mandate, whose proposal is to make EU trade and investment policy work for people and the planet, not just the profit interests of a few

But there's a more important misdirection in Clancy's headline.  He is trying to frame the European Commission as pro-trade, and CEO as "anti-trade".  But what is under discussion here is not trade, it is the regulations that protect our health and safety, and help preserve the environment, for example.  

If the European Commission truly wanted a debate "based upon the facts and not the spin", it would acknowledge that TAFTA/TTIP is only tangentially about trade barriers, and mostly about national and European regulations.  And it would stop trying to re-define long-standing measures that protect the public, and which were drawn up in an open and democratic way, as "non-trade barriers", that need to be reduced or removed.

By adopting this language, it reveals it is engaged in an attempt at massive deregulation in favour of the transnational corporations it meets with so much, to the disfavour of the European public whose only role here seems to be to pay the not-inconsiderable wages of the European Commission and its staff.

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TTIP Update VIII

Even the European Commission admits that TAFTA/TTIP is not, primarily, a trade agreeement, because the trade barriers between the EU and the US are already so low that removing them will add little to the EU economy.  According to a report commissioned by the EU, the uplift in 2027 will be only 24 billion euros; that compares with the most favourable outcome touted by the report, which is 119 billion euros GDP uplift in 2027. However, that is predicated on massive deregulation – although the European Commission prefers to use the euphemism of "removing non-tariff barriers."

Actually, it doesn't really like that term either, because that reveals that the real agenda is deregulation.  Instead, it frames it as "regulatory harmonisation" – making the EU and US systems more compatible.  But there's a problem here: when the two systems flatly contradict each other – for example, over whether chickens can be washed in chlorine, or cattle injected with growth hormone – there is no possible "harmonisation": they are fundamentally incompatible. 

The US side is quite frank about this: among its many demands is that the EU dismantles its strict health and safety regulations and allows chlorine-washed chickes beef pumped up with growth hormones in EU supermarkets and thus on EU plates.  So the interesting question is how the European Commission will manage to pull this off, given the spotlight that is being shone on possible deregulation: how can it somehow accommodate the US demands without being seen to lower EU standards it has pledged to defend in the negotiations?

The latest leak from the TTIP talks gives us a clue.  Corporate Europe Observatory  has obtained a position paper on "regulatory coherence" [.pdf], which explains how "how TTIP could establish an effective system of transatlantic regulatory co-operation".  It lays out how the major problems of regulatory incompatibility – the chlorine chickens and growth hormone beef, for example – won't be solved now, under the full glare of public scrutiny, but will be shuffled off to the future, where a new and powerful body will be established to "smooth out" those tricky regulatory bumps.  Here's how it would work, as explained by  Corporate Europe Observatory:

Business interests on both sides of the Atlantic are pushing hard to get an institutional structure, an “oversight body”, into the agreement, mostly referred to as an EU-US “Regulatory Council”. This would be based on a set of rules for regulatory cooperation that would enable the parties to deal with their differences in a more long-term fashion, through procedures that will give business the upper hand. It might very well be that the final TTIP text will not include immediate concessions on public health and environmental regulation. But it could include an approach for the future, giving the basic message to citizens that regulation is none of their business, but first and foremost the business of business.

Regulatory cooperation is a long term project. It is meant to deal with differences that could not be settled at the negotiating table at the highest level and also to respond to new regulations as they occur. In the course of the negotiations, the parties will see to what extent they can agree on common standards, or recognise each others' standards as basically similar. But in those areas where this is not possible in the short term, they will set up procedures to deal with them in the future. The idea is to make TTIP a “living agreement”, not confined to what they can agree on in the first place, but a continuous process of ever deeper integration . That raises the prospect of the parties reaching a conclusion on even the most difficult issues, such as food safety. For corporations  from the EU and US, it raises hopes for better access to each other's markets including in sectors that meet obstacles today, and for that reason it is being promoted vigorously by the business lobbies on both sides of the Atlantic.

The key phrase there is "living agreement".  Actually, a better description would be "zombie treaty".  The idea here is that TAFTA/TTIP never dies, and is constantly re-negotiated behind closed doors by the same elite that are discussing it currently – that is, unelected politicians and big business.  Through the constant dripping of regulatory adjustment on the stone of EU laws in time, the awkward rough edges of health and safety, environmental and social protection, would be worn away.

Here's why this approach is problematic:

Business should have the right to be involved in the first stage when new regulation is prepared. And let us remember that when we are talking about regulation we mean rules intended to prevent the food industry from marketing foodstuffs which include dangerous substances, or to keep energy companies from destroying the climate, or regulations to combat pollution and to protect consumers.

New regulations should be investigated via a “regulatory compatibility analysis” (RCA).  During this investigation, seven questions would have to be answered. The questions are clearly tilted towards the interests of business, as they are mainly about the impact on business and on trade, including what the costs or savings would be to the private sector, how much regulatory authorities would “save” by down-scaling measures, and whether measures are outdated and should thus be eliminated or modernised. In other words, a business-friendly agenda is to constitute the backbone of regulatory assessments, if the business lobby has it its way.

As that makes clear, the Regulatory Council would embed not just business more deeply in the process of drawing up (and amending) regulations, it would allow US corporations to argue against EU practices from within the citadel.  This would give them an immense power to interfere with what are inherently European matters, and to subvert them for their own purposes.

They will be aided by the “regulatory compatibility analysis” (RCA).  That's because this is all about the impact on "business and trade": there is no mention of the adverse social impact, say, or the environmental harms, that new regulations might cause.  That's of a piece with the European Commission's current claims about TAFTA/TTIP: even if you accept the wildly implausible 119 billion euros GDP uplift in 2027, nowhere is any account taken of the negative externalities the requried changes will cause. 

For example, reducing the EU's high food, health and safety standards will inevitably cause more people to become ill, placing a greater burden on the European health system.  Similar, lowering environmental protections will lead to a degradation  of our surroundings. That has a real value to many people, even if it can't be quantified in monetary terms.  None of this is captured in the European Commission's TAFTA/TTIP propaganda.

Interestingly, the position paper on Regulatory Coherence has a couple of fig leaves.  First, we have the following, significantly stated right at the start:

The TTIP provides a historic opportunity for the EU and the US to substantially enhance regulatory co-operation. Such co-operation should be guided by both Parties’ right to develop and maintain, policies and measures ensuring a high level of environmental, health, safety, consumer and labour protection, fully respecting the right of each side to regulate in accordance with the level of protection it deems appropriate.

To which I can only say: well, yes... But having a "right" to develop and maintain those policies, and actually to use that right, are two quite different things.  In particular, once US companies are inside the regulatory development process, they will simply use its machinery – notably the “regulatory compatibility analysis” - to justify why certain regulations should or should not be adopted.  Those that would use that right to stand up for EU citizens – for example, the European Parliament – will have no way of doing so under the new scheme.  Moreover, as Corporate Europe Observatory explains:

Business will be awarded all kinds of rights to demand information, dialogue and negotiation on regulatory measures. If this proposal is adopted, a firm and effective “right for lobbyists to intervene and block” will be enshrined in an international agreement and in EU law.

Another advantage for the business lobby groups is the opaque nature of all the dialogues and procedures, many of which are set to take place well before any real public or democratic debate can take place.

…

If we add to this the fact that the Commission is the only EU body allowed to table legislative proposals, we have a recipe for disaster: the Commission would presumably be easily persuaded by US authorities or the US business lobby to refrain from tabling a proposal if it would cause a stir in the EU-US trade relationship.

The other fig leaf addresses some of these issues – in theory:

Each Party would undertake stakeholder consultations on regulatory and legislative measures in the areas that will be covered by this Chapter, according to their respective consultation framework.

Each Party should establish or maintain appropriate mechanisms for responding to enquiries from any interested person regarding any measures of general application covered by this Chapter. Upon request each Party should provide information on any existing o r proposed measure that the
other Party considers might affect the operation of this Agreement, regardless of whether it was notified.

Each Party should endeavour to identify or create enquiry or contact points for interested persons of the other Party with the task of seeking to effectively resolve problems for them that may rise from the application of measures of general application. Such process should be easily accessi ble,
time-bound, result-oriented and transparent. They should be without prejudice to any appeal or review procedures, which the Parties establish or maintain.

Sounds great, no?  Transparency and access for everyone.  Well, may be not.  What the Regulatory Council will create is simply another forum where the rich and powerful will find it easier to make their voices heard.  In particular, lobbyists will swarm to this new locus of power and ensure that public concerns are drowned out even more than already happens in Brussels.

The key thing to underline about the proposed Regulatory Council is that it is not some minor side issue, but central to the European Commission's approach to TTIP and achieving its long-term aims with it.  The European Commission probably knows that it could never get through an agreement that explicitly tried to level European protections downwards.  Instead, it will negotiate a far more reasonable document, with a few important exceptions. 

One is the investor-state dispute settlement (ISDS) mechanism that I've already at some length.  In fact, I think the European Commission would be prepared to "sacrifice" that chapter for the sake of getting TAFTA/TTIP through the European Parliament, given the growing outrage over the ability of ISDS to place corporation above nations.

The other exception is setting up the Regulatory Council.  That's because the Council will effectively allow the European Commission to postpone the more difficult deregulation and elimination of EU health and safety protection, and to spread it out over many years.  It will be able to wrap them up with other changes that the European Parliament is keen to pass, and so as a compromise the things that would never be accepted in the main TAFTA/TTIP document will slide through the legislative process in dribs and drabs.  Clever.

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TTIP Update VII

In my last TTIP update, I wrote about a fascinating document that revealed the European Commission's PR strategy for handling TAFTA/TTIP.  It was already possible to detect there a growing sense of panic among the Commission – a fear that they were losing control of the "narrative", and that remedial action was needed.

Since then, two documents have been released officially by the Commission, and they provide some extremely important information on the negotiations.  That's because they are concerned with what I have already flagged up as perhaps the most dangerous aspect of TAFTA/TTIP: corporate sovereignty, known officially as investor-state dispute resolution (ISDS).  The problem here is that this places companies at the same level as nations – indeed at the same level as the EU as a whole – and gives them extraordinary capabilities for dictating the contours of laws and regulations.

There are actually three documents – two official, and the letter accompanying them, which has been leaked.  The letter comes from Jean-Luc Demarty, who is Director-General of Trade, and was sent to Vital Moreira, chairman of INTA, the European Parliament's Committee on International Trade.  Moreira was a supporter of ACTA, and is probably best known for threatening to throw people out of a public meeting on that subject if they applauded.

Here's how the letter explains itself:

I take this opportunity to share with you a document explaining in more details our approach to investment protection and investor-State dispute settlement in general, and a factsheet explaining what we have achieved in this respect with Canada. We will distribute this document widely in the Parliament.

These are the two documents that have been made public.

We welcome the technical meeting scheduled to take place on 26 November on this matter. At the same time we believe we should find more such opportunities. In particular, we would welcome a dedicated debate.

ISDS was until recently an obscure and neglected aspect of TAFTA/TTIP, but as more people wake up to its dangers, and begin voicing their fears, so MEPs are naturally becoming aware too, and they are probably starting to wonder if it will be as politically toxic in the present agreement as the Internet provisions were in ACTA.  The European Commission is therefore desperate to try to convince members of INTA, which is the lead committee for TAFTA/TTIP, that ISDS is perfectly harmless, and that they really shouldn't pay any attention to the people raising serious questions about its relevance for this kind of deal.

The main document is called "Investment Protection and Investor-to-State Dispute Settlement in EU agreements" (pdf), and claims to be a "fact sheet": that is, it is trying to assert that everything it contains is a fact, and not just matters of opinion that can be argued over.  The introduction summarises nicely the structure of the document:

This outline explains why investment protection provisions are necessary and looks at lessons learned from how investment protection has worked in the past. It presents the concrete improvements made by the Commission to investment provisions in EU trade agreements and which will be included in future agreements.

The first section provides us with some information about investments around the world:

Investment is a critical factor for growth and jobs. This is particularly the case in the EU, where our economy is very much based on being open to trade and investment. Investment is key in creating and maintaining businesses and jobs. Through investment, companies build the global value chains that play an increasing role in the modern international economy. They not only create new opportunities for trade but also value-added, jobs and income. That is the reason why trade agreements should promote investment and create new opportunities for companies to invest around the world.

Of course, exactly the same arguments were used for TAFTA/TTIP's predecessors – NAFTA and KORUS.  And yet, as I noted in my previous TTIP update, NAFTA and KORUS actually *destroyed* around 680,000 and 40,000 US jobs respectively.  But let's just ignore that inconvenient detail for the moment, and continue exploring why TAFTA/TTIP absolutely must have corporate sovereignty included:

Companies investing abroad do encounter problems which - for a variety of reasons - cannot always be solved through the domestic legal system. These problems range from the rare, but dramatic, occurrences of expropriations by the host country by force, discrimination, expropriation without proper compensation, revocation of business licences and abuses by the host state such as lack of due process to not being able to make international transfers of capital.

Well, yes companies have indeed encountered all those problems, *in certain countries*, specifically those with poorly-developed legal systems.  But as I have asked before, is the European Commission seriously suggesting the the US might engage in "expropriations by the host country by force, discrimination, expropriation without proper compensation, revocation of business licences and abuses by the host state such as lack of due process to not being able to make international transfers of capital"?  I have to say, for all the US's many faults, none of those seems very likely.  But again, let us continue to listen to the European Commission's logic here:

Precisely because of these risks, provisions to protect investments have been part and parcel of all the 1400 bilateral agreements entered into by EU Member States since the late 1960s. The EU itself is party to the Energy Charter Treaty, which also contains provisions to protect investments and investor to state dispute settlement. Worldwide, there are over 3400 such bilateral or multiparty agreements in force containing provisions to protect investments. They provide guarantees to companies that their investments will be treated fairly and on an equal footing to national companies. By creating legal certainty and predictability for companies, investment protection is also a tool for states around the world to attract and maintain FDI [foreign direct invesment] to underpin their economy.

Notice how this moves from those 1400 bilateral agreements negotiated since the late 1960s – many with countries that do not have developed legal systems, and therefore might present some of the dangers described above – to the claim  that "investment protection is also a tool for states around the world to attract and maintain FDI to underpin their economy."  So what the "fact sheet" is asserting here is that without ISDS provisions in TAFTA/TTIP, poor old Europe just won't attract and maintain foreign direct invesment. 

Sounds pretty compelling you might think – after all, surely it's better to have that investment, and if Europe will only get it with ISDS, well so be it.  But there are some more of those inconvenient facts the the European Commission somehow omits to mention.  That's rather strange, because it's to be found on the European Commission's own Web site pages dealing with EU-US trade:

Total US investment in the EU is three times higher than in all of Asia.

EU investment in the US is around eight times the amount of EU investment in India and China together.

EU and US investments are the real driver of the transatlantic relationship, contributing to growth and jobs on both sides of the Atlantic. It is estimated that a third of the trade across the Atlantic actually consists of intra-company transfers.

So it sounds like foreign direct investment from the US to the EU (and from the EU to the US) is not only present, but actually vastly more important than investment anywhere else in the world.  But how can this be?  After all, currently, there are *no* ISDS mechanisms between the EU and US (which is why the European Commission is insisting we create them in TAFTA/TTIP.)  According to the "fact sheet", this ought to mean that Europe is unable to attract and keep US investment.  And yet, by its own figures, the US invests three times more in the EU than in all of Asia.

In other words, the Commission's own figures demonstrate that ISDS has been completely unnecessary in the past: the US has been more than happy to invest many billions in the EU.  They also demonstrate that there is no reason whatsoever to bring it in now, since US companies are clearly not going to rip out all their investment in the EU just because they don't have access to ISDS mechanisms.  That's for the very simple reason that they don't need them: they have the extremely well-developed EU court systems to which they can – and do – turn.

So there would be no benefit in bringing in corporate sovereignty rights in TAFTA/TTIP, but there would be huge risks.  How do we know this?  Because the European Commission's very own "fact sheet" says so:

While the number of cases brought to arbitration is small compared to the hundreds of thousands of investment decisions made daily benefiting both the host countries and companies investing in them, some of the most recent cases brought by investors against states have given rise to strong public concerns. The main concern is that the current investment protection rules may be abused to prevent countries from making legitimate policy choices.

Amongst the cases that have caught the public attention are the on-going cases Vattenfall vs. Germany and Philip Morris vs. Australia. The Swedish energy company Vattenfall has brought a claim against the German government (under the Energy Charter Treaty) after its decision in 2011 to significantly speed up the phase out of nuclear power generation. The US owned company Philip Morris has challenged the government of Australia for the latter’s decision to ban brand names on cigarette packs (the 'plain packaging' measure) for reasons of public health.

...

The public concerns raised surrounding these cases are legitimate and need to be addressed.

So the Commission itself recognises that the concerns are legitimate and need to be addressed.  And this is how it proposes to address them:

The Commission’s aim i[s] to bring improvements on two fronts (1) to clarify and improve investment protection rules and (2) to improve how the dispute settlement system operates. Such improvements will address the concerns raised that investment protection rules may negatively impact states’ right to regulate. They should, amongst other things, ensure that companies cannot successfully bring claims against states’ regulatory policies when these are taken for public policy
reasons.

Let me emphasise here, as I did before, that these things are simply what the European Commission *wants* to do – not what the US will agree to.  The other document released with the "fact sheet" is an attempt to bolster the Commission's case: it's called "EU- Canada CETA : main achievements" (pdf).  It reveals – for the first time – what the still-secret CETA contains in terms of ISDS.  But of course what happened with Canada has very little bearing what will happening with the US. 

Where the EU was able to bully the small and relatively weak Canada into accepting pretty much everything the European Commission wanted, that is clearly not the case with the US.  Indeed, the Commission is so conscious that it is the weaker party in the TAFTA/TTIP negotiations, it was forced to address this in the PR document I referred to at the beginning of this post.  Here's what it says:

Many of the fears about what TTIP may represent are linked to a perception that the EU is not in a sufficiently strong position to engage with the United States. Some of this also stems from the fact that the EU is currently in a weaker economic position than the US and that therefore we need TTIP more than they do. We need to make clear that this is not the case, that despite the crisis the EU remains the world's largest market and is as such an indispensable partner for any trading economy (i.e. both sides have major economic interests in these negotiations). We must also make clear that we have as strong a track record as the US in trade and other negotiations, including with the US itself.

Methinks the lady doth protest too much...

But this delusion about being an economic equal of the US, and thus able to force its ideas of how to revise ISDS on a recalcitrant negotiating partner that is used to getting its own way, is actually irrelevant.  The key point is that ISDS simply has no place whatsoever in TAFTA/TTIP.  To see why, we need to go back to the opening of the corporate sovereignty "fact sheet", which states:

Investment protection provisions, including investor-state dispute settlement are important for investment flows. They have generally worked well. However, the system needs improvements. These relate to finding a better balance between the right of states to regulate and the need to protect investors, as well as to making sure the arbitration system itself is above reproach e.g. transparency, arbitrator appointments and costs of the proceedings.

As we've seen, investment protection provisions are simply irrelevant when it comes to EU-US trade, so that argument can be discarded.  But what's really disturbing is the idea that TAFTA/TTIP should be about

finding a better balance between the right of states to regulate and the need to protect investors

That is, the European Commission believes that these have something to do with each other, as if the former – the right to regulate the workings of a society – has to be abrogated in order to protect the latter – investors and their money.  That is not just wrong, it is downright insidious: it places the rights of investors at the same level as the rights of citizens; it asserts that the public must necessarily give up some of its own hard-won health, environmental and social protections in order to "protect" the ability of companies to make profits. 

This pernicious notion is why ISDS is not fixable in any way, despite what the European Commission would have us to believe.  Its very presence in a trade agreement is an affront to the citizens in whose name it is supposedly being negotiated, and an affront to democracy itself.  ISDS must go.

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TTIP Update VI

In my previous TTIP update, I reported on an extremely important leak about the Trans-Pacific Partnership agreement (TPP), which is the other half of the US attempt to stitch up world trade through supranational agreements.

It's still too early to hope for something similar on the TAFTA/TTIP front – but rest assured, it's only a matter of time (another reason why the insistence on secrecy is not just anti-democratic and insulting, but stupid, too.)  However, Corporate Europe Observatory (CEO), one of the key sites dealing with transparency (and lack of it) in Europe has come into the possession of a TTIP document that is very interesting:

CEO has today published a leaked version of the European Commission's communication strategy for overcoming public skepticism about the controversial EU-US trade negotiations, the so-called Transatlantic Trade and Investment Partnership (TTIP). The document was discussed at a meeting with EU member states on Friday 22 November. In order to "reduce fears and avoid a mushrooming of doubts", the Commission proposes to "further localise our communication effort at Member State level in a radically different way to what has been done for past trade initiatives".

It's not very long, so I recommend reading the whole thing on CEO's site; here I'd like to pick out a key passage.  The leaked document spells out what it sees as the three main communication challenges, the first of which is the following:

Making sure that the broad public in each of the EU Member States has a general understanding of what TTIP is (i.e. an initiative that aims at delivering growth and jobs) and what it is not (i.e. an effort to undermine regulation and existing levels of protection in areas like health, safety and the environment).

TAFTA/TTIP may "aim" at delivering growth and jobs, but what exactly does that mean?  The European Commission's own research predicts a range of possible outcomes:

Under a comprehensive agreement, GDP is estimated to increase by between 68.2 and 119.2 billion euros for the EU and between 49.5 and 94.9 billion euros for the US (under the less ambitious and more ambitious scenarios). However, if the FTA would be limited to tariff liberalisation only, or services or procurement liberalisation only, the estimated gains would be significantly lower. For example, an FTA limited to tariff liberalisation would lead to a lower (23.7 billion euro) increase in GDP for the EU and a 9.4 billion euros increase for the US.

There's a big difference between the 119 billion euros – the figure routinely quoted by the European Commission, even though it is only one extreme case – and the 23.7 billion at the other end, for estimates of the boost to the EU's GDP.  From the research document again:

The comprehensive option includes two scenarios: a less ambitious agreement that includes a 10 per cent reduction in trade costs from NTBs and nearly full tariff removal (98 per cent of tariffs) and an ambitious scenario that includes the elimination of 25 per cent of NTB related costs and 100 per cent of tariffs.

NTB refers to "non-tariff-barriers, and basically means things like health and safety regulations, environmental protection, employment rules and financial rules.  In other words, most of the things that make Europe what it is today: an extremely safe and pleasant place to live.  The 119 billion euro figure always quoted by the European Commission refers to "the elimination of 25 per cent of NTB related costs".  If we don't get rid of those, the predicted GDP boost is a much more modest 24 billion euros – hardly worth bothering about, given that the EU's GDP in 2012 was 12,900 billion euros (indeed, even the massively-improbable 119 billion euro figure is still less than 1% of GDP.)

In some cases, it may be possible to remove those non-tariff barriers that without compromising on health and safety standards, but in others, it is clearly impossible.  A symptomatic case in point is the famous chlorine-washed chicken.  In the US, it is permitted to wash chicken carcases in chlorine water, whereas this is not regarded as safe in the EU.  These positions are not compatible.  So how will this "non-tariff barrier" be dealt with?

The European Commission has said that health standards will not be compromised, which suggests that the EU will not accept chlorine-soaked chickens; but the senior vice president of America's National Chicken Council has a different view of what will happen in TAFTA/TTIP [pdf]:

We have been assured on a number of occasions by our trade negotiators that our industry's issues will not be traded-off for some other issue on the EU side.  We trust our negotiators will secure the most favorable outcome possible, but at the risk of being redundant, we will want to be doubly-assured that the end product is worthy of our support.

That certainly sounds like they think that chickens washed with chlorine water will soon be winging their way to European plates, whether Europeans want them or not.  The same confidence that the EU public's wishes will be swept away during the TAFTA/TTIP negotiations can be found in other food safety areas, such as bringing US beef produced with growth hormones to Europe, and the contentious area of GMOs, as well as the EU's rigorous chemical safety framework REACH - another target of US industry.

This exposes the central dilemma at the heart of TTIP: either the European Commission abandons the precautionary principle – something that is actually enshrined in the Lisbon Treaty – in a desperate attempt to realise some of the over-promised financial gains, or it gives up the big numbers and settles for a mere 0.2% GDP growth in order to preserve European health and safety regulations: it can't in general have both.

In fact, even if the European Union *did* deregulate massively – something that industry on both sides of the Atlantic is pushing hard for [.pdf] - with who knows what consequences for public health and safety, it might all be in vain anyway.  It's obviously hard making prediction (especially about the future, as they say), but luckily we do have the past as a guide. 

TTIP (and TPP) are actually part of a series of major trade agreements that the US has been signing  in order to impose its laws and economic philosophy around the world.  The two most important ones prior to TPP and TTIP are the North American Free Trade Agreement (NAFTA) and the South Korea-US Free Trade Agreement (KORUS).  Here's what happened with NAFTA:

The United States ran a $1.6 billion trade surplus ($2.6 billion in today's dollars) with Mexico in 1993, the year before NAFTA. Last year [2011], the United States ran a $64.5 billion deficit.

And here's KORUS:

In the year after the agreement took effect (April 2012 to March 2013), U.S. domestic exports to South Korea (of goods made in the United States) fell $3.5 billion, compared with the same period in the previous year, a decline of 8.3 percent. In the same 12-month period, imports from South Korea (which the administration consistently declines to discuss) increased $2.3 billion, an increase of 4.0 percent, and the bilateral U.S. trade deficit with South Korea increased $5.8 billion, a whopping 39.8 percent.

But maybe the trade agreements are generating jobs at least – that's one of the things that the European Commission says TAFTA/TTIP will do. Here's what happened with NAFTA:

Bill Clinton (1993) and his supporters claimed in the early 1990s that the North American Free Trade Agreement would create 200,000 new jobs through increased exports to Mexico. In fact, by 2010, growing trade deficits with Mexico had eliminated 682,900 U.S. jobs

Well, what about KORUS?

When the U.S.-Korea Free Trade Agreement was completed in 2010, President Obama said that it would increase U.S. goods exports by "$10 billion to $11 billion," supporting "70,000 American jobs from increased goods exports alone"

Here's what actually happened:

Using the president's own formula relating changes in trade to jobs, the growth in the trade deficit with South Korea in the first year since KORUS took effect likely cost more than 40,000 U.S. jobs

So if you were willing to water down health and safety in the hope that you will be recompensed with that 119 billion euros GDP gain, every indication from the past suggests that you are a mug, because the claimed benefits would not flow. 

Actually, that's not entirely true: some companies would indeed save money by being able to dump today's EU environmental, labour, health and safety regulations.  But those savings certainly wouldn't "trickle down" to the public, not even as more (lower-paid) jobs – because, don't forget: one consequence of trade agreements is that companies tend to move their production to the country with the lowest costs.  One way of reducing costs is to reduce wages, and so TAFTA/TTIP may well actually see working people in the EU worse off than the current situation.  And if you think that's just my ill-informed opinion, you might like to read what the Economic Policy Institute has to say on TAFTA/TTIP:

A much more likely outcome [than the European Commission's rosy projections], based on North American experience under NAFTA, is that production workers in all the member countries will suffer falling wages and job losses (Scott et al. 2006), while U.S. and EU investors will profit handsomely, reinforcing the rapidly rising share of profits in corporate and national income that has taken place over the last decade in the United States (Mishel 2013).

Given these incontrovertible facts about past trade agreements, and the fundamental contradiction in the European Commission's stated aim of achieving large GDP gains by abolishing non-tariff barriers while preserving the precautionary principle and maintaining the European Union's uniquely high health and safety standards, you can see why its communication department has a big job on its hands.

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TTIP Update V

Today's update is a little odd, since it's not actually about TAFTA/TTIP.  Although the second round is taking place this week, it's almost certain we'll be told nothing about the real substance of the discussions.  That's because even thought these massive trade agreements affect hundreds of millions of people, the latter are not given any opportunity to see the draft texts as they are discussed, or to have any meaningful dialogue with the negotiators.  That may have been acceptable 30 years ago, but in the age of the Internet, when it is trivial to make documents available, and easy to enter into online discussions, it's outrageous.

The same has been true for the parallel Trans-Pacific Partnership agreement (TPP) negotiations, which is doing for the Pacific what TAFTA/TTIP aims to do for the Atlantic: define the terms of not just trade, but also the health, safety and environmental regulations that govern our lives.  The almost-total secrecy of the TPP talks, which are much further along than those of TAFTA/TTIP, was shattered yesterday, when Wikileaks released a text [.pdf] of the most contentious chapter: that covering intellectual monopolies.

What makes this particularly interesting is that it shows the negotiating positions of all the nations taking part – these are the US, Canada, Australia, New Zealand, Japan, Malaysia, Vietnam, Brunei, Singapore, Chile and Peru.  That means we can see quite clearly what the US is pushing for in TPP – and what it is liking to be looking for in TAFTA/TTIP.  Of course, the dynamics in the two agreements are very different: the EU is able to stand up to the US – at least theoretically – in a way that the much smaller nations that make up most of TPP can't (even Japan is dwarfed by both US and EU).

The leaked TPP draft is from 30 August, and so represents an earlier stage of the talks.  It is so full of bracketed alternatives where the negotiators have been unable to agree on a text that it is clear a huge amount remains to be done.  The brackets also make reading the text hard: if you'd like a summary of what's in the chapter, there are good ones from KEI and the EFF.  Here I will just pull out some elements that are relevant to TAFTA/TTIP and the digital world.

As far as patents are concerned, the US wants everything to be patentable:

each Party shall make patents available for any invention, whether a product or process, in all fields of technology, provided that the invention is new, involves an inventive step, and is capable of industrial application.

That includes software patents, but also "plants and animals" and "surgical methods".  In addition, here's what the US wants:

a Party may not deny a patent solely on the basis that the product did not result in enhanced efficacy of the known product when the applicant has set forth distinguishing features establishing that the invention is new, involves an inventive step, and is capable of industrial application.

That is, it wants patents for things that don't actually doing anything more than a current invention, but are simply "new" – that is, different in some unimportant way.  This would allow so-called "ever-greening" of patents, which would dilute the value of patents even more, moving them even further from their original purpose of promoting innovation.

The copyright section is one of the most interesting in the leak, since it touches on so many areas I've discussed here in Open Enterprise in the context of ACTA.  Surprisingly, it manages to go beyond ACTA in its awfulness.  This, for example, is what the US wants:

Each Party shall provide that authors, and producers of phonograms have the right to authorize or prohibit all reproductions of their works, and phonograms, in any manner or form, permanent or temporary (including temporary storage in electronic form).

TPP would make even the transient copies of works made as they pass over the Internet, or stored in a computer's RAM, all subject to copyright.  That would mean that everyone would need to get permission from copyright holders to download or even view any copyright work.  I'm not sure how that would work in practice, but even the idea of it is chilling.  It is essentially trying to make the entire Internet a permission-based system.

As far as enforcement is concerned, there's the following (agreed) section for civil damages:

In determining the amount of damages under paragraph 2, its judicial authorities shall have the authority to consider, inter alia, any legitimate measure of value the right holder submits, which may include lost profits, the value of the infringed goods or services measured by the market price, or the suggested retail price.

Which is essentially identical with ACTA , Article 2.2:

In determining the amount of damages for infringement of intellectual property rights, its judicial authorities shall have the authority to consider, inter alia, any legitimate measure of value submitted by the right holder, which may include the lost profits, the value of the infringed good or service, measured by the market price, the suggested retail price.

This goes to show how ACTA is by no means dead, and lingers on in this residual way.  Criminal infringement is even worse:

Each Party shall provide for criminal procedures and penalties to be applied at least in cases of willful trademark counterfeiting or copyright or related rights piracy on a commercial scale.

But what is commercial scale?  Here's what the US wants:

significant willful copyright or related rights infringements that have no direct or indirect motivation of financial gain

That says people can be sent to prison for copyright infringement, even if there is no direct or indirect motivation of financial gain.  The question then becomes: what is "significant"?  Probably a smartphone with a few thousands MP3s that you've ripped from CDs...

Like ACTA, there is also criminal liability for aiding and abetting infringement, again, even if there is no financial gain:

With respect to the offenses for which this Article requires the Parties to provide for criminal procedures and penalties, Parties shall ensure that criminal liability for aiding and abetting is available under its law.

That might catch open source developers if their code is used for making unauthorised copies, for example, even if they were not for financial gain.

Moreover, the criminal penalties must be harsh:

penalties that include sentences of imprisonment as well as monetary fines sufficiently high to provide a deterrent to future acts of infringement

Another very troubling aspect is what's happening with following clause on ISP intermediary liability:

Each Party shall limit the liability of, or the availability of remedies against, internet service providers when acting as intermediaries, for infringement of copyright or related rights that take place on or through communication networks, in relation to the provision or use of their services.

Both the US and Australia oppose that protection, without which ISPs would become liable for everything that their customers do.  If that is enacted, it would mean that ISPs would have to spy on everything, otherwise they would run the risk of being held liable for infringement.  That, in its turn, would inevitably lead to massive censorship, since ISPs would naturally err on the side of caution rather than risk huge fines under TPP.

It's worth emphasising that the leak concerns an older version of the draft, and that things could have changed by now.  But that older version does show us what alternatives are being proposed, and very often the differences are minor.  What's clear, is that the US has been pushing for maximalist intellectual monopolies at every turn.  There's no reason to think that its approach during the current TAFTA/TTIP will be any different.

And there's another issue here.  We've long suspected that the intellectual monopolies chapter of TPP would be bad, and the Wikileaks document confirms this.  You can also understand why the US has been adamant that the negotiations should  be secret: now that we can see what's in at least part of it, we can work to improve its worst features.  Without the text, that's impossible.

This latest leak confirms once again why we must push to have drafts released immediately.  There is no justification for not doing so – they are not "secret", since all parties can see it.  The only ones who can't are the public, in whose name and for whose benefit they are supposedly being negotiated.  That's truly a disgrace.

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TTIP Update IV

One of the key issues during the ACTA negotiations was transparency – or rather the lack of it.  Despite a few token gestures from the European Commission initially, TAFTA/TTIP looks like it will be just as bad. Here's a rather nice trick the negotiators have just played:

Surprise!  The second round of negotiations for the massive Trans-Atlantic Free Trade Agreement (TAFTA) won’t be happening in Washington, DC in December as planned.  It will be happening in six days.  In Belgium.

…

USTR’s email yesterday invited “stakeholders” to a “briefing session” next Friday where “non-governmental organizations, consumer groups, trade unions, professional organizations, business and other civil society organizations will have the opportunity to exchange views with U.S. and EU chief negotiators.” It just happens to be taking place on the other side of the Atlantic Ocean.

This may well be the most expensive “stakeholder engagement” opportunity presented by the Obama administration for one of its sweeping “trade” deals. At current prices, the cheapest last-minute flight to “exchange views” with TAFTA negotiators in Brussels would set you back $1977. That may not be a problem for the approximately 600 corporate trade “advisors” who are already deeply involved in helping USTR craft TAFTA negotiating positions. For the rest of us, it’s a bit like getting an email invitation to your friend’s destination wedding in Cancun a week before the ceremony (psst...I don’t really want you to come).

That act of petty spitefulness is indicative of a deep and crucial asymmetry in the TAFTA/TTIP negotiations.  Whereas some of the world's largest companies are given privileged information about what is happening – not least *where* things are happening – the public, which is poorly represented anyway, finds itself cut out from that insider knowledge, and therefore lacks the ability to follow the negotiations properly, let alone give any input to them.

That's obviously disgraceful for something that is supposedly being negotiated in their name – and which is certainly being negotiated using their taxes, which pay the European Commission negotiators their not inconsiderable salaries, and the cost of their plane tickets as they jet to and fro across the Atlantic – first class, no doubt.

But there is an even deeper, more troubling asymmetry at the heart of these talks that concerns the investor-state dispute settlement (ISDS) element I've written about in my last two TTIP Updates.  That's probably the most problematic and worrying area of the whole agreement, because the core idea of ISDS is that any laws or court decisions that cause even the "expectation" of future profits of companies to be diminished in some way can potentially be litigated before a secret, supranational tribunal able to impose unlimited fines on entire nations.

The subtle implication of this is that legislative changes must tend to increase corporate profits.  So, for example, improved health and safety laws would be stymied by this, as would enhanced environmental protection where it causes a company's profits to be reduced (as is likely, since better protection usually means more costs for the polluters.)

In other words, ISDS introduces exactly the same kind of upward ratchet that copyright laws have produced for the last three hundred years.  Just as copyright laws only ever make copyright longer, broader and deeper – to the benefit of companies and disbenefit of the public -  so ISDS will put huge pressure on the EU and member states only to pass legislation that improves the outlook for corporate profitability.  The fact that these kind of moves may well cause huge social damage – greater health or environmental problems – is completely overlooked, because the framing does not allow the social costs to be taken into account, only private profits.

That makes this proposal in South Korea particularly interesting:

Evaluation of trade agreements have been made in economic terms. But the impact of trade agreements is not limited to economic life. They have human rights dimensions in many aspects. For instance, trade agreements containing the TRIPS-plus provisions may affect the right to access to essential medicine, the right to food and more broadly the right to science and culture, which is protected by the Article 27(1) of the Universal Declaration of Human Rights. So the UN human rights bodies have tried to develop and propose human rights impact assessments (HRIA) of trade agreements (See The Future of Human RightsImpact Assessments of Trade Agreements).

The recent move of the National Assembly of South Korea to mandate the HRIA was influenced by the efforts of the UN human rights bodies. The lawmaker, Mr. Buh, proposed a bill to amend the Law on the Treaty-Making Process and Implementation of Trade Agreements (Trade Process Act), which includes an amendment making compulsory the HRIA on every trade pacts that are likely to be agreed upon with trade partners.

This is an important move, because it begins the long journey of re-balancing trade agreements around the world so that they take in account human rights and therefore, by implication, the public interest as well as corporate profit.  Although it's not clear whether the Korean initiative will succeed, it does at least raise the issue in a political context.  We now need to start similar conversations here in the EU and in the US regarding TAFTA/TTIP if that agreement is to have any claim to fairness and legitimacy.

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TTIP Update III

It's been fairly quiet on the TAFTA/TTIP front recently.  That's largely because Europe shuts down for its summer hols during August, and has only just got going again.  Unfortunately (for TAFTA/TTIP), the next round of negotiations has just been cancelled because the US administrations was busy being, er, not busy.  But as a consolation prize, we have a couple of documents from the European Commission on the subject of Investor-State Dispute Settlement (ISDS), which by a happy coincidence was the subject of my previous TTIP Update.

In fact, those two documents turns out to be pretty much the same, just re-worded slightly.  Both seek to defend the indefensible – that is, to convince people that ISDS is totally harmless, and nothing to worry our pretty heads about.  Above all, they want to reassure us that ISDS is definitely not this years' ACTA....

This comes through most clearly in the document entitled "Incorrect claims about investor-state dispute settlement" [pdf].  So let's have a look at some of the claims about the claims:

Claim: Investor-state dispute settlement subverts democracy by allowing companies to go outside national legal systems.

Response: Untrue! To get a sense of perspective on this question it is important to remember that the EU itself, as well as all but one of our Member States, Switzerland, the United States, Canada, Japan, South Korea and India - to name just a few - are all party to many agreements which provide for investor-state dispute settlement. These countries, and many more that also allow investor state dispute settlement, have healthy, vibrant democracies.

More specifically, relying on the national courts of the host country to enforce obligations in an investment agreement is not always easy.

Firstly, the investor may not want to bring an action against the host country in that country's courts because they might be biased or lack independence.

Secondly, investors might not be able to access the local courts in the host country. There are examples of cases where countries have expropriated foreign investors, not paid compensation and denied them access to local courts. In such situations, investors have nowhere to bring a claim, unless there is an investor-state dispute settlement provision in the investment agreement.

Thirdly, countries do not always incorporate the rules they sign up to in an investment agreement into their national laws. When this happens, even if investors have access to local courts, they may not be able to rely on the obligations the government has committed itself to in the agreement.

All that sounds plausible, until you remember that TTIP is an agreement between the EU and US, nobody else.  So let's look at the above "explanation" in that light:

"Firstly, the investor may not want to bring an action against the host country in that country's courts because they might be biased or lack independence. "

So the European Commission is saying that the US courts are biased or lack independence?  I do hope Karel de Gucht explains why when negotiating with his US counterparts.

"Secondly, investors might not be able to access the local courts in the host country. "

So here the European Commission is saying that investor might not be able to access local courts in the US? Sure, that happens all the time....

"Thirdly, countries do not always incorporate the rules they sign up to in an investment agreement into their national laws."

So now the Commission thinks that the US will go to the trouble of negotiating this huge treaty – and then just ignore its provisions?  Again, how plausible is that as an answer? 

And notice that none of the three points actually addresses the key issue, which is that ISDS does indeed allow companies to go outside national legal systems, and thus subvert established democratic institutions like the local courts. Basically, ISDS is inappropriate for developed nations like the EU and US.  Introducing it does one thing, and one thing only: provides foreign investors with extra rights over and above what ordinary citizens and domestic companies enjoy.

So let's look at another:

Claim: Investor-state allows companies to sue just because they might lose profits.

Response: Wrong! Companies cannot sue successfully just because their profits might be affected. They need to have a case. That means they need to prove that one or more of the investment protection standards, such as non-discrimination or protection against unlawful expropriation have not been respected. The fact that a government changes a law, which increases the costs for a given company, is not on its own, sufficient to bring a successful case in investor-state dispute settlement.

Although it's strictly speaking true that companies cannot sue *just* because they might lose profits, in practice that's pretty much what happens, because the so-called "investment protection standards" are so vague and easy to invoke.  Here's a good explanation from Public Citizen:

Investors and corporations can demand taxpayer compensation for policies that they allege as violating special “rights” granted to foreign investors by NAFTA-style FTAs. These “rights” are phrased in vague, broad language. Tribunals have increasingly interpreted these foreign investor “rights” to be far more expansive than those afforded to domestic firms, such as the “right” to a regulatory framework that conforms to a corporation’s “expectations.” This “right” has been interpreted to mean that governments should make no changes to regulatory policies once a foreign investment has been established.

Claim: Investor-state dispute settlement cases take place behind closed doors

Response: Many existing agreements do indeed provide, by default, that investment disputes are heard behind closed doors. The EU does not believe that is appropriate. We have championed transparency in international dispute settlement in general and in investor-state dispute settlement in particular. In future EU agreements, all submissions will be public, all hearings will be open, all decisions of the tribunal shall be public and interested parties will be able to make their views known.

So the response here is more along the lines of "well, yes, that's true, but we'd really like to change it."  Unfortunately, that overlooks the fact that it can't do that unilaterally: it needs to get the US to agree, and the current administration has shown itself a bigger enemy of transparency than any predecessor.  Bottom line: it's not going to happen.

Claim: Investor-state dispute settlement undermines public choices (e.g. Vattenfall challenging the German moratorium on nuclear power, Philip Morris challenging Australia’s plain packaging regime for cigarettes)

Response: It is important to note that only well-founded cases have a chance of being successful. The fact that a policy has been challenged does not mean that the challenge will be successful. The EU will negotiate in such a way so as to ensure that legislation reflecting legitimate public choices e.g. on the environment, cannot be undermined through investor-state dispute settlement.

Well, see comment above: the EU can negotiate until it's blue in the face, but if the US refuses to go along with the plan, then the situation remains the same.  And here's what currently happening: a wide range of health, safety and environmental regulations are being challenged through the ISDS mechanism:

foreign corporations have launched investor-state challenges against a wide array of consumer health and safety policies, environmental and land-use laws, government procurement decisions, regulatory permits, financial regulations and other public interest polices that they allege as undermining “expected future profits.”

Claim: Investor-state dispute settlement is biased in favour of investors – they can threaten to bring expensive cases against governments and so scare them away from policies that the investors do not like.

Response: There is little real world evidence that this is the case. UN statistics on investor state dispute settlement cases show that a majority of cases are decided in favour of the government (Of all the cases concluded by 2012, 42% found in favour of the State, 31% in favour of the investor and 27% were settled).

This is an absolutely key issue.  ISDS actions threaten to become the global version of patent trolls: by merely threatening to sue they can cause cautious governments to change their plans.  Notice how the European Commission quotes the figures for "all the cases concluded by 2012".  That conveniently bundles together all the early cases where tribunals did, indeed, tend to find for the State more often.  But unfortunately for the European Commission's argument, that's no longer the case.  Here's what the UN statistics have to say about 2012:

In 70% of the public decisions addressing the merits of the dispute, investors’ claims were accepted, at least in part.

Next:

Claim: Investor-state dispute settlement cases are decided by a small clique of lawyers, with considerable conflicts of interest, who seek to cream off public money.

Response: Like in any area of national or international law the number of true specialist lawyers in the field is not large. Some of these lawyers do combine roles as arbitrators in some disputes and advocates in others. This crossing over may create the risk of conflicts of interest.

In other words, this is also true, but we would like to change it (see above).

Finally, we have:

Claim: Investors should not be allowed to challenge governments directly in international law. Only governments should be able to act against each other, via state-to-state dispute settlement.

Response: It is investors who actually suffer the financial losses. Governments (including the EU) need to pursue the general interest, and that means that they have neither the time nor the resources to follow-up each individual alleged breach of the agreement.

The fact that governments (including the EU) have neither the time nor resources to deal with each alleged breach is precisely why ISDS is so pernicious: it forces governments (or the EU) to spend huge amounts of time and money dealing with claims made under it.  The fact that tribunals are finding increasingly often in favour of companies means that more cases will be brought, because the odds of succeeding are going up, especially if speculative funding is available.

And here's another reason why that growth in ISDS trolling is likely to happen: last year saw the largest award made by an ISDS tribunal – a cool $1.77 billion in damages.  And remember, that's money that the government concerned has to pay.  If ISDS is included in TAFTA/TTIP, the people who will end up footing the not inconsiderable bills will be you and me.

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TTIP Update II

As I noted in my first TTIP Update about the current negotiations between the EU and US over a massive trade agreement that is far from being only about trade, it is probably true that it will not include many of the more outrageous ideas found in ACTA last  year.  But that is not to say that TTIP does not threaten many key aspects of the Internet – just that the attack is much more subtle.

The problem is the inclusion of "investor-state dispute settlement" (ISDS).  This began as a perfectly reasonable attempt to ensure that investments in developing countries were not unlawfully expropriated by rogue governments.  The idea was that if such an event occurred, and the local government refused to compensate the investor, the latter had recourse to independent international courts that considered the case and awarded damages that could be levied against the government in question in other ways – for example, seizing their assets abroad.

Sadly, a sensible idea in one context has been seized upon by opportunists and applied in a context where it's quite inappropriate.  In particular, companies are using ISDS against governments in Western countries.  That's not necessary, because those countries already have extremely well-developed legal systems that allow the courts to consider allegations of expropriation by governments there.  But companies have realised that ISDS tribunals give them an amazingly powerful way to overrule a country's laws.  The following case illustrates how this works in practice.

It involves the US drug company Eli Lilly and Company, which has invoked the ISDS clause in the North American Free Trade Agreement signed between Canada and the US (and Mexico).  Here's the background:

Eli Lilly launched its NAFTA attack after Canadian courts invalidated Eli Lilly’s monopoly patent rights for an attention deficit hyperactivity disorder (ADHD) drug called Strattera. The Canadian courts did so after determining that Eli Lilly had presented insufficient evidence (a single study involving 22 patients) when filing for the patent to show that Strattera would deliver the long-term benefits promised by the company. While the $100 million NAFTA investor-state compensation demand relates to revocation of the Strattera patent, Eli Lilly makes clear in its formal “Notice of Intent” to Canada that it is not only challenging the invalidation of its particular patent, but Canada’s entire legal doctrine for determining an invention’s “utility” and, thus, a patent’s validity. While pushing for an entirely different patent standard, Eli Lilly, the fifth-largest U.S. pharmaceutical corporation, is demanding $100 million from Canadian taxpayers as compensation for Canada’s enforcement of its existing patent standards.

In fact, Eli Lilly has now upped the stakes and demanded $500 million "compensation".

It's worth exploring what is going on here.  Canadian courts have determined that Eli Lilly did not meet the required standard in order to be granted a patent.  This is not a question of an arbitrary, or capricious act by some third-world dictator, but the final decision of a sovereign nation's highest court.  However, Eli Lilly is unwilling to accept that decision, and has invoked the ISDS clause in NAFTA in an attempt to overturn the ruling and demand money.  In other words, ISDS allows companies both to sue entire nations, and to ignore their laws.

Incredible though that may seem, here's why that is possible, as explained in the long and extremely detailed post from Public Citizen on the topic, quoted above:

The system elevates foreign corporations to the level of sovereign governments, uniquely empowering them to skirt domestic laws and courts and privately enforce the terms of a public treaty by directly challenging governments’ public interest policies before foreign tribunals.

The tribunals deciding these cases are comprised of three private sector attorneys, unaccountable to any electorate. Many of the tribunalists rotate between serving as “judges” and bringing cases for corporations against governments. Such dual roles would be deemed unethical in most legal systems. In this “club” of international investment arbitrators, there are fifteen lawyers who have been involved in 55 percent of the total international investment cases known today. The tribunals operate behind closed doors, and there are no meaningful conflict of interest rules with respect to arbitrators’ relationships with, or investments in, the corporations whose cases they are deciding.

Tribunalists are paid by the hour, creating an incentive for cases to drag out endlessly. Governments are often ordered to pay for a share of tribunal costs even when cases are dismissed. Given that the average costs for such procedures total $8 million, the mere filing of a case can create a chilling effect on government policy, even if the government expects to win. (In one challenge against the Philippines, the government’s tribunal and legal costs alone topped $50 million.) If a tribunal rules against a challenged policy, there is no limit to the amount of money the tribunal can order the government to pay the foreign corporation. The cases cannot be appealed on the merits. Countries may file for an “annulment” for certain specific categories of tribunal “error.” Annulment claims are not heard by domestic courts, but are decided by another tribunal comprised of private sector attorneys.

Investors and corporations can demand taxpayer compensation for policies that they allege as violating special “rights” granted to foreign investors by NAFTA-style FTAs. These “rights” are phrased in vague, broad language. Tribunals have increasingly interpreted these foreign investor “rights” to be far more expansive than those afforded to domestic firms, such as the “right” to a regulatory framework that conforms to a corporation’s “expectations.” This “right” has been interpreted to mean that governments should make no changes to regulatory policies once a foreign investment has been established.


Claiming such expansive protections, foreign corporations have launched investor-state challenges against a wide array of consumer health and safety policies, environmental and land-use laws, government procurement decisions, regulatory permits, financial regulations and other public interest polices that they allege as undermining “expected future profits.”

It's important to note that last point: ISDS allows companies to claim for not just alleged past losses, but also supposed loss of "expected future profits".  These, moreover can be "caused" simply by a government passing legislation that happens to reduce a sector's future profits.  They can include something as laudable as strengthening environmental protection, since the extra expense of meeting those more stringent standards would naturaly reduce profits.  Even though this was carried out legally by the government concerned, and in order to protect public health, ISDS clauses would allow a company to sue for the "expropriation" of future profits caused by this move.

Now let's look at this from the point of view of open souce and the Internet.  As the case involving Eli Lilly shows, patents are already being contested using ISDS tribunals.  One obvious situation where this might affect open source is in the area of software patents.  As I have pointed out many times, the situation in Europe is rather anomalous here.  Although the European Patent Convention explicitly rejects software patents ("as such"), the EPO continues to issue them using various formal tricks.  That's why there is continuing pressure to confirm the invalid nature of software patents nationally and at a European level.

But let's suppose that under the current TTIP treaty, ISDS is brought in between the US and EU.  US software companies could then point out that affirming the invalidity of software patents granted by the EPO would obviously reduce the value of those patents.  They would therefore doubtless claim that the European Union or member nations had "expropriated" that value, and demand compensation, just as Eli Lilly has for a patent that Canada decided should not be granted.

With the threat of dozens of huge companies threatening to sue Europe over tens of thousands of software patents, the European Union might decide that the cost of "compensating" them for their "loss" would be simply too great, and thus ultimately acquiesce in the grant of software patents, even though this was being imposed upon them.

But it's not just in the area of patents that the EU could find its hands tied.  The same applies to copyright.  For example, there are various areas where more flexibilities might be introduced into copyright law.  US publishers might claim that these would cause their future profits to be diminished, and sue the EU or nation states for daring to make this move.  Again, the scope for making changes to copyright law in the EU and in invidivudal nations would be greatly reduced for fear that deep-pocketed companies would start suing over things they didn't like – whether or not it was good for Europe and its public.

Similarly, I could imagine inventive lawyers trying to argue that the lack of harsh penalties for unauthorised sharing of copyright material in Europe causes US companies to "lose" profits as a result.  This threat might be used to "encourage" EU lawmakers to pass precisely the kind of laws that were envisaged in ACTA: for example, criminalising even small-scale copyright infringement, and encouraging ISPs to pass on personal information.

Another approach might be to claim that any moves to adopting open standards, which would provide a level playing field for open source, would cause profits for existing incumbents to drop.  They could then invoke ISDS and demand "compensation" for any such move.  The same would be true for any preference given to open source in government procurement.

In this way, the actual or threatened complaints under ISDS clauses would push the EU to bring in precisely the worst ideas of ACTA, but without needing to specify them.  So negotiators can claim quite truthfully that there will be no attempt to bring in ACTA by the backdoor; instead, they will just leave that to ISDS, which gives US corporations a weapon far more powerful than anything envisaged in ACTA.

And if you think I am exaggerating the scale of the threat here, take a look at this official report on ISDS by UNCTAD, the United Nations Conference on Trade And Development:

The Issues Note reveals that 62 new cases were initiated in 2012, which constitutes the highest number of known ISDS claims ever filed in one year and confirms that foreign investors are increasingly resorting to investor-State arbitration.

Foreign investors challenged a broad range of government measures, including changes to domestic regulatory frameworks (with respect to gas, nuclear energy, the marketing of gold, and currency regulations), as well as measures relating to revocations of licences (in the mining, telecommunications and tourism sectors). Investors also took action on the grounds of alleged breaches of investment contracts, alleged irregularities in public tenders, withdrawals of previously granted subsidies (in the solar energy sector), and direct expropriations of investments.

By the end of 2012, the total number of known cases reached 518, and the total number of countries that have responded to one or more ISDS claims increased to 95. The overall number of concluded cases reached 244. Out of these, approximately 42 per cent were decided in favour of the State and 31 per cent in favour of the investor. Approximately 27 per cent of the cases were settled.


Two of the most chilling facts are the following:

2012 saw some notable developments, including:

The highest monetary award in the history of ISDS (US$1.77 billion) in Occidental v. Ecuador, a case that arose out of unilateral termination by the State of an oil contract; and

The first treaty-based ISDS proceeding where an arbitral tribunal affirmed its jurisdiction over a counterclaim that had been lodged by a respondent State against the investor.

Remember, those awards would have to be paid by the state – that is, the people – and the same is true if ISDS cases come to Europe: it will be you and me who must pay because somebody claims that their future profits have been harmed in some way. 

Despite the very high stakes – we are talking many billions of Euros here – few seem to be aware of the serious threat that ISDS represents to national and European sovereignty.  We urgently need to make people and politicians aware of what is going on here before the ISDS mechanism is enshrined in TTIP for companies to use to attack both open source and the Internet in new and frighteningly effective ways.

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