TTIP Update XXII

The fact that corporations are regularly placed on the same level as entire nations, and can sue them for alleged loss of future profits, probably came as something of a shock to most people, as it did to me when I first encountered the idea.  It sounded like the deranged fantasy of some corporate lobbyist, but surely not something that any country would actually accept.  And yet, as we know, not only do many - small, and relatively weak - countries consent to investor-state dispute settlement (ISDS) as the price of obtaining much-needed inward investment, but the European Commission seems hell-bent on exposing European to the same kind of corporate attack.

I say "Europeans", and not European nations, because ultimately it is the taxpayers that must fund the increasingly exorbitant awards that ISDS tribunals are making.  To put it another way, it's a classic case of "privatising the profit, and socialising the costs": EU companies get to make profits in the US, but it's mostly the EU citizens who would have to foot the bill if awards were made under ISDS in favour of American corporations operating here in Europe.

Even though ISDS burst upon the scene relatively recently for most of us, we actually have a fair amount of information about its previous history, largely thanks to bodies like the United Nations Conference on Trade And Development (UNCTAD), which has been producing handy summaries of what's been happening in this strange world for a while now.  It's just published its latest report [.pdf], and it contains some important developments. The number of new cases is only one less than the previous year's record - 57 against 58.  More significant is the following:

The greatest number of 2013 cases were brought against countries in Europe (26 cases, of which two are against countries not members of the European Union (EU) – Albania and Serbia)

Specifically:

Twenty four arbitrations (42 per cent of all cases) were brought against EU Member States. The range of countries involved is broad and includes “new” and “old” Member States, namely the Czech Republic (7 cases), Spain (6), Croatia (2), Hungary (2), Slovakia (2), Bulgaria (1), Cyprus (1), France (1), Greece (1), and Slovenia (1). In all of these arbitrations except for one, the claimants are also EU nationals; they started the proceedings on the basis of either intra-EU bilateral investment treaties (BITs) or the Energy Charter Treaty (ECT), sometimes relying on both at the same time.

That's an important shift, since it shows that ISDS is no longer simply a way for Western countries to bully developing ones, but that the weapon has now been turned against many EU countries, mostly by other EU countries.  This suggests that companies are becoming aware of and more comfortable with ISDS as a way of extracting money from EU governments.  Couple that with the fact that overall the US is the leading nation when it comes to using ISDS - 127 cases out of 568 (22%) -  and that there are  more than 14,400 US-based corporations that own more than 50,800 subsidiaries in the EU, and you have a recipe for an ISDS-based legal Armageddon.

The report contains some other significant straws in the wind:

Several arbitrations launched in 2013 have an environmental dimension. In two disputes against Canada, investors are challenging measures introduced on environmental grounds. The first, a claim by Lone Pine Resources, arose out of Quebec’s moratorium on hydraulic fracturing (fracking) that led to the revocation of the company’s gas exploration permits. The second dispute relates to Ontario’s moratorium on offshore wind farms (pending research on their health and environmental effects); the claimant contends that the temporary ban breaches its contract for the electricity supply which it had concluded with the Ontario Power Authority for a 20-year period.

This is precisely the kind of things that many fear will happen if ISDS is included in TTIP: companies will seek to overturn policies that are brought in for environmental reasons, arguing that corporate profits outweigh the rights of the public.  The following case is also highly relevant to the EU situation:

Achmea, a Dutch insurance company, is seeking to preclude the host State from expropriating Achmea’s stake in a Slovak health insurer (the relevant draft law is under consideration by the Slovak Parliament). The right of States to expropriate property is well-established under international investment law as long as certain conditions are met. Achmea is claiming that some of these conditions would be breached (requirement of public interest, non- discrimination and due process) if the expropriation goes ahead.

A similar situation could arise in the UK if a future government decided to reverse the current privatisation of NHS services, and sought to re-nationalise them.  If a US company were involved, it might claim that the UK could not expropriate property in this way because conditions to do so were not met.

The UNCTAD report is really well-worth reading in order to gain an understanding of how ISDS is developing - and how quickly.  For example, there are cases where companies try to claim "moral damages" along with everything else, and another case where a company that had made a $5 million investment was awarded $900 million in "lost profits" - even though it seems to have no track record as a profitable organisation.

Trade lawyers around the world have clearly realised that ISDS is one of the most efficient ways for their clients to extract money from governments, and they are applying their not-inconsiderable - if largely amoral - ingenuity to come up with new ways of using the mechanism.  That's another important reason why the "innovative elements" the European Commission plans to introduce to "improve" the system won't work - they are trying to fix yesterday's problems - and why ISDS must be removed completely from TTIP.

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TTIP Update XXI

In Update XX, I noted that despite the European Commission's claims to the contrary, there was simply no evidence of any meaningful transparency in TTIP.  However, that changed today, when the Commission announced its consultation on investor-state dispute settlement.  That's because as well as the questions and useful background explanations, the consultation document [.pdf] includes not only provisions found in typical bilateral investment treaties but - and this is particularly welcome - the relevant text developed in the Canada-EU trade agreement (CETA).  That is what transparency looks like, and needs to be extended to all the other chapters.

However, I don't intend to go through the consultation document here: I'll save that for another update (we have three months to reply to the consultation, so there's no huge rush.)  Instead, I want to address an issue that comes up again and again, and which represents such a serious misrepresentation of the facts, that I really want to try to deal with it once and for all.

It concerns the famous 119 billion euros figure for the "extra" GDP growth that TTIP will produce, which I've mentioned several times before.  Here's its latest appearance, on a page from the powerful EPP political group in the European Parliament, which is entitled "Mythbusting the EU-US free trade agreement".  The relevant section reads as follows:

What's in it for the EU?

The impact assessment launched by the European Union before the start of negotiations in March 2013 suggested that the EU's economy could benefit by 119 billion euros a year and the US economy could gain an extra 95 billion a year - with gains of 545 euros for each EU family. These gains would be the result of removing tariffs and doing away with unnecessary rules and bureaucratic hurdles that make it difficult to buy and sell across the Atlantic.

Notice there's that "119 billion euros" figure, but notice that the claim is Europe would gain this *each year*.  The @EPPGroup account confirmed to me that the EPP had obtained that number from the main European Commission research on the economic impact on TTIP, "Reducing Transatlantic Barriers to Trade and Investment ; An Economic Assessment" [.pdf].  And sure enough, on page vii of that document, in the Key Findings section, we read:

An ambitious and comprehensive transatlantic trade and iinvestment agreement could bring significant economic gains as a whole for the EU (€119 billion a year) and US (€95 billion a year). 

This translates to an extra €545 in disposable income each year for a family of 4 in the EU, on average, and €655 per family in the US.

This is very curious, because that's not what the actual report says at all. 

The correct interpretation is found on page 3 of the report, where we find that 119 billion euros figure again, which is explained as the change in GDP.  But it is not the change in GDP *each year*, which is what the Key Findings section claims; in rather small print on that page, underneath the table labelled "Summary of Macroeconomic Effect", we read the words:

Note:  estimates to be interpreted as changes relative to a projected 2027 global economy

The fact that the Key Findings is wrong is confirmed on page 33 of the report, which explains things at more length:

The results are reported with respect to an economic benchmark projected out to the year 2027 which implies that that they capture the impact of the agreement a full ten years after the implementation of the agreement, providing the longer-term impact of policy changes.

As that makes clear, the results give the difference between two situations: the EU's economy in 2027 if TTIP had been in place for ten years, and the EU's economy in 2027 without TTIP.  The different is expressed as the extra GDP that would result - 119 billion euros in the most optimistic case.

So what the report is saying is that the extra growth that TTIP could bring in 2027 relative to the economy in 2027 without TTIP in 119 billion euros. 
Which means that the 119 billion euros is the *cumulative* benefit for those ten years of TTIP, compared to the ten years without TTIP.  On average, then, the claim is that TTIP could produce 11.9 billion euros extra for the European economy each year, for ten years, giving an *overall* boost to the EU GDP of 119 billion.Which means that the 119 billion euros is the *eventual* level of GDP boost, after 10 years.

It can be a little hard juggling abstractions like extra growth in GDP over a decade; so let's look at the other figure that the Key Findings mentions: "an extra €545 in disposable income each year for a family of 4 in the EU," which works out as around 136 euros per person. Assuming there are 500 million people in the EU, if that figure were *each year*, as claimed, this would give a total increase in EU disposable income of 500 million times 136 euros, which equals 68 billion euros, each year, thanks to TTIP.

But as we've seen, the increase in GDP each year is only around 12 billion euros on average.  So that 68 billion euros figure clearly refers to the *cumulative* increase in disposable income in 2027, after 10 years of TTIP, compared to what what people would have had in 2027 without TTIP, just as the figure of 119 billion euros refers to the cumulative gain for the economy.

Put another way, that 545 euros is the *total* increase in disposable income across 10 years, not the extra disposable income available each year, as the Key Findings erroneously claims.  That equates to an average of 60 euros extra, per year, for a family of 4.

In other words, even under the most optimistic assumptions, and using the European Commission's own forecasts, the real-life effect of TTIP would be that each week, everyone in a typical European family of 4 would be able to buy an extra cup of coffee, but only after TTIP had been in place for 10 years.  Before that people will have to share their coffee.

As this shows, even under the most favourable assumptions - assumptions that are unlikely to be realised - TTIP's benefit to European citizens would be negligible.  The threats, on the other hand, are considerable, not least from investor-state dispute settlement, which is likely to cast a chill over legislative initiatives in the European Union, just as it did in Canada under NAFTA.

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TTIP Update XX

At this stage of the negotiations it's clear that there are two controversial areas: investor-state dispute settlement, and transparency.  I've discussed ISDS extensively in the previous updates, so here I'd like to look more closely at transparency - or rather its absence.

As I mentioned in my previous update, the fact that that US Trade Representative felt compelled to release a document that it called "U.S. Objectives, U.S. Benefits In the Transatlantic Trade and Investment Partnership: A Detailed View" is a sign that it knows full well that the talks so far have been almost totally devoid of transparency: the document is a sop - nothing more - to the crescendo of voices calling for real openness.  After all, had transparency been something that the USTR truly cared about, it would have released the document as soon as the TTIP negotiations began, not some arbitrary number of months later.

Further proof that the US and European Commission are under pressure is a new document from the latter entitled "Towards an EU-US trade deal: Making trade work for you" with the subhead "We're listening and engaging" [.pdf].  And if you were wondering who "you" is, here's a clue:

We know we'll only get the best deal - one that benefits as many Europeans as possible - if we involve everyone with a stake in the outcome, at every stage.  That's why we're consulting the public.

The rest of the four-page document is essentially geared to trying to demonstrate that fact.  Here, for example:

1. Consulting and updating the public

We're using the web to get a clearer idea of the wider public's wishes and concerns."

Great. So how might the European Commission be doing that?

Before the talks started we held three online consultations to better understand the measures people want us to take to boost EU-US trade and investment.

Well, that's impressive, no?  Just one small problem. Even though I follow trade deals pretty closely - indeed, I sometime think I'm the only person reading some of these documents apart from those drafting them and their mothers - I didn't take part in any of those consultations.  Not, as you might imagine, because I didn't think they were important, or that I wanted to keep my views secret, but for the simple reason that I never heard about them.  Any of them.  And I would humbly like to submit that if I didn't get to hear about them, not many members of the public did either (indeed, I'd really like to hear from any readers that did know about any of these three consultations.) 

I've now managed to track down some of those consultations.  For example, according to the results of one held in 2012, a total of 114 submissions were made, of which precisely 8 came from citizens. Another consultation from earlier that year received 48 submissions, of which two look as if they might be from the public.  That's transparency?

Of course, for the next TTIP consultation, things are likely to be very different, because we all know it's coming, and are keen to take part:

A fourth consultation asks for the public's views on our draft ideas on protect ing investors . These include improvements to a system known as investor - state dispute settlement, or ISDS, which dates back over 30 years.

There are (at least) three interesting things about that short statement.  First, the complete non-sequitur that ISDS dates back over 30 years.  As I've discussed at length, the point is that ISDS has never existed between the US and European Union, and yet despite that fact, the US has invested 1.3 trillion euros in Europe, and Europe 1.4 trillion euros in the US, so the absence of ISDS doesn't seem to have deterred investors that much.

The second point is that the consultation will be about "protecting investors" - not, as you might hope, about protecting the public, who are the main ones threatened by the ability of corporations to sue entire nations under ISDS, with the taxpayer footing the billing when the companies win.  No, we're only being asked about how to protect those defenceless international investors.

Finally, we have flagged up here the fact that the public will be asked for comments to "improvements" the system, which suggests that we will not be given the option to reject the idea completely.  Instead, I suspect, the questions will be framed largely in terms of "do you think the improvements are, er, improvements."  We shall see - this consultation is rumoured to be coming out later this week.

This section on "Consulting and updating the public" concludes:

We also post regular updates on our dedicated webpages and on Twitter . And we regularly brief the press.

That's good, but is purely about "updating the public": the striking thing is that the only "consulting" going on in this section was from those mysteriously invisible three consultations that very few members of the public responded to.  So as evidence of "transparency" I think we can call this section a failure.

Other sections try to convince us that talking to the governments of the 28 member states, to MEPs, and to some "TTIP Advisory Group" somehow counts as transparency, but of course it doesn't.  It keeps the information in the same restricted circles it's always been in (and even then, we know that very little useful information is passed on to MEPs, say.)  Section 4 "Hearing from other interest groups" - recognises there are others involved:

We want to hear from everyone with a stake in this agreement.

We regularly meet people from firms large and small, and from industry bodies.  This is, after all, a deal about the mechanics of doing business.  So we need their input.

That's absolutely true - and nobody said they shouldn't provide it.  But the other side of the coin is that this is a deal about the everyday lives of 500 million Europeans, and so we need *their* input.  Here's how the Commission thinks it is getting it:

But we also listen to people from:

consumer associations
trades unions
environmental groups and other NGOs

In addition:

Since 2012, we've held seven meetings in Brussels - each time with hundreds of people.

Well, yes, but unfortunately it tends to be hundreds of people from companies.  For example, back in January, the European Commission organised what it called an "Outreach" session in Brussels.  It sounded promising:

As part of an ongoing commitment to transparency, DG TRADE is organising a second Civil Society Dialogue to discuss progress and to exchange views on the TTIP.

Well, that's great - except for one tiny detail: out of the 196 entities registered as taking part, only about 30 were from civil society: the rest were - you guessed it - from companies and their lobbying organisations.  In other words, wherever you turn, it is always business that has the loudest voice, and has most of the Commission's attention.  Civil society - never mind the actual public - barely gets a look in.

The final hope for some transparency is the sharing of documents, covered in section 5 of the new text:

We aim to share as many documents as possible - not just with governments and MEPs, but also with out panel and the public.

Hooray - the public gets a mention. 

In fact we've published more than 50 documents online, including:

factsheets and FAQs
press releases and memos
studies and meeting reports

Well, I'm sorry, you can't claim things like factsheets, FAQs and press releases as examples of transparency: they are created purely for the purpose of being distributed.  What we want are the key documents that are being used for the negotiations.

In any negotiation, partners need to build trust.  For that they need a degree of confidentiality. 

So there are some text we can only show to governments and MEPs - like our offers to the US to:

cut tariffs on goods they export to us open our services markets to their firms.

While it is true those details need to be kept secret before the negotiations, once thay have been laid on the negotiating table for the US to see and discuss, they are no longer secret by definition, and thus can be published, since they would reveal nothing to the US that is not already known.  So by the European Commission's own arguments, tabled documents could be made available to the public in whose name they are being negotiated.

As the above makes plain, the Commission's claims for transparency are pretty weak.  That's evident from its parting shot:

But at the end of the process, the whole deal will be open to scrutiny in any case.

And the final decision comes with a double democratic guarantee.  Only a majority of both EU governments and MEPs can approve an agreement.

This is just an insult to our intelligence.  There is no meaningful "scrutiny" at the end of the process, because nothing - zero - can be changed at this point.  Instead, it's a "take it or leave it" decision that will be offered to the European Parliament.  And we know exactly how the conversation will go: "yes, there may be things you absolutely hate in there, but you've *got* to accept it otherwise you will be personally responsible for throwing away all those jobs..." - moral blackmail in other words.   Of course, as I've shown elsewhere, that's not even true - the European Commission's own figures show that the extra annual GDP that TTIP would produce in the most optimistic case is just 0.05% - statistically indistinguishable from zero. 

But the European Commission won't let a little thing like facts get in the way; which is precisely why it refuses to allow any real transparency for TTIP.  That would show all-too clearly that is the transnational corporations that benefit, and that the majority of their gains - 80% according to the Commission's own predictions - come from cost-cutting made possible by deregulation through the elimination of "non-tariff barriers" - health and safety standards, environmental regulation and the like.  And no amount of re-assuring four-page documents with key words printed in bold for easy consumption will change that.

Full list of previous TTIP Updates.

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TTIP Update XIX

In my last update I raised the issue of an apparently obscure facet of investment chapters - the presence of "Most Favoured Nation" clauses - that actually undermined any attempts to bring in "safeguards" against the manifest dangers of that form of supranational corporate sovereignty known as investor-state dispute settlement (ISDS).  Cynics among you probably thought this was nit-picking, but support for the idea has arrived from a rather surprising quarter:

According to Rupert Schlegelmilch, director of services, investment and procurement at DG Trade, speaking on behalf of the Commission at a public debate yesterday on investor-state dispute settlement (ISDS) and the TTIP, the EU is rethinking a “Most Favoured Nation” (MFN) article in the CETA investment chapter that new analysis suggests undermines much of the more careful language in the treaty relating to a government's ability to regulate. As written, the MFN article would let Canadian and EU investors ignore the definitions of “fair and equitable treatment” or “indirect expropriation” in CETA and take other more investor-friendly language from past agreements signed by either party.

Obviously, it's great news that the European Commission has recognised there's a problem here, and is trying to do something about it.  But this incident actually underlines a much bigger point.  The problem with MFN only emerged because the CETA chapter dealing with ISDS was leaked.  That meant that experts such as Nathalie Bernasconi-Osterwalder and Howard Mann at the International Institute for Sustainable Development were able to spot this huge loophole there [.pdf].  But that immediately raises the question: how many other serious problems are lurking in the many other chapters of CETA for which we do not have leaked versions? Would it not be better to have many experts searching for loopholes in the agreement *before* it is signed, rather than afterwards, when fixing them will be very hard, if not impossible?

Really, this comes down to applying Linus' Law -  the insight that given enough eyeballs, all bugs are shallow - to the code of international treaties.  Not to do so is wilfully to throw away the power of parallelised production, which allows better results to be produced much more quickly.  In other words, keeping texts secret is not just an insult to the public in whose name they are being negotiated, but actually leads to worse results thanks to the lack of proper scrutiny.

So, in the absence of texts that have been discussed during the latest round of the TAFTA/TTIP negotations - texts that are by definition not secret, since they have been discussed by both sides - in this update I will analyse some other documents that provide useful insights.

For example, the US Trade Representative, which is the negotiation partner for the European Commission, has released what it calls "U.S. Objectives, U.S. Benefits In the Transatlantic Trade and Investment Partnership: A Detailed View".  That in itself is interesting, and shows that it is feeling the pressure to open up.  Of course, releasing one very general document does little to address that, but it does contain one or two tidbits worth noting.

For example, in the section "Electronic commerce and information and communication technology (ICT) services" we read:

free flows of data are a critical component of the business model for service and manufacturing enterprises in the U.S. and the EU and key to their competitiveness.

But as we know, the European Parliament has come out against such "free flows", and wants to see European-style data protection for personal data when it leaves the EU.  So it will be interesting to see how that works out.

One aspect of TTIP that has not been discussed much yet concerns intellectual monopolies.  Here's what the USTR has to say on the subject:

We seek new opportunities to advance and defend the interests of U.S. creators, innovators, businesses, farmers, and workers with respect to strong protection and effective enforcement of intellectual property rights, including their ability to compete in foreign markets.

The question is: will the US try to use TAFTA/TTIP to bring in ACTA-like measures?  Since everything is being negotiated behind closed doors, we don't yet know, but I'm confident we'll soon see some leaks that gives us an insight into this crucial area.

Finally, there is the controversial area of investor-state dispute settlement (ISDS):

We recognize that trade agreements that are effectively enforced establish a set of high-standard rules and obligations that help keep markets open to U.S. exporters and investors and ensure a level playing field.  When we negotiate and implement a trade agreement, we expect our trading partners to stick by the rules and obligations they agreed to.  However, when our trading partners fall short of what they promised – whether to reduce tariffs, implement strong labor and environment provisions, or otherwise provide U.S. exporters fair and non-discriminatory treatment – we need a means to hold them accountable.  This is why we have this important objective to establish a fair and open dispute settlement mechanism.  Dispute settlement gives us a means to discuss our concerns in a timely way and to seek compensation if they are not addressed.  Dispute settlement with trading partners in T-TIP will give the American public the confidence that we not only negotiate strong, high-standard obligations, but that we also have the means to enforce them.

You've got to love the subtle suggestion that the European Union is some kind of large, fragmented banana republic where the rule of law is uncertain, and thus supranational tribunals of the kind employed by ISDS are indispensable.  Just can't trust that sneaky Euro-trash...

Meanwhile, we're starting to see some sectoral information about what various industry want from TTIP, and hidden away in the details there are some interesting angles.  For example, here is a "Proposal on US-EU Regulatory Cooperation" [.pdf] from The European Crop Protection Association (ECPA) and CropLife America (CLA).  As you might expect, most of that document falls outside the scope of this column, but there's one section that certainly touches on issues I've discussed before:

ECPA and CLA strongly support that the EU and US continue to promote (a) minimum standards of 10 years for protecting regulatory data, and (b) protection of CBI [Confidential Business Information] through Free Trade Agreements with other countries, where protection of regulatory data is sub-optimal. Protection of regulatory data from unauthorized use by competitors is essential for stimulating investment in research and development of agricultural crop protection products. This protection provides benefits to all stakeholders – from farmers to consumers – ultimately contributing to the economic development of industrialized and developing countries alike.

That "regulatory data" is essentially health and safety information.  This must be made available as open data, for the same reason that clinical data should be.  It allows it to be checked by independent researchers, and also allows it to be analysed and re-used in new ways.  Making it proprietary as the ECPA and CLA call for blocks those kind of uses.  As it becomes more widely recognised that data is a crucial resource for the future, we need a general principle that "regulatory data is always open data" to be enshrined not just in TTIP, but in all agreements.

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TTIP Update XVIII

A lot has been happening on the TTIP front recently.  That's largely because of two factors.  First, that the real negotiations have begun, which is generating a lot of activity by all those involved.  And secondly, because resistance to some or even all of TTIP is growing, and that is manifesting itself in various ways.  For example, yesterday the important resolution on NSA surveillance passed by the European Parliament included the following key recommendation:

Parliament should withhold its consent to the final Transatlantic Trade and Investment Partnership (TTIP) deal with the US unless it fully respects EU fundamental rights, stresses the resolution, adding that data protection should be ruled out of the trade talks. This consent “could be endangered as long as blanket mass surveillance activities and the interception of communications in EU institutions and diplomatic representations are not fully stopped”, notes the text.

Interestingly, the leak of a document from 2012 [.pdf] reveals that getting consent for TTIP is going to be much harder than we thought.  The confidential legal opinion says that TTIP must be regarded as a "mixed agreement".  What that means in practical terms is that all 28 EU national parliaments must approve it - it's not just the European Parliament that gets to vote here.  That makes the barrier to getting TTIP through much higher.

There's more resistance in the form of a new site dedicated to TTIP put together by the Green/EFA Group of the European Parliament:

The European Greens do not believe that TTIP represents the kind of transatlantic relationship we need. As it currently stands, TTIP threatens our democracy and risks undermining our hard-won regulation and standards in a host of sectors.

We are against the current negotiation agenda that was set by business interests and is taking place in complete secrecy. Negotiations need to be in the full view of the public and their representatives, and the deal needs to promote and enhance social, environmental, health and consumer rights, not undermine them.

Contributions to this site will continue over the coming months. The Greens hope to provide a platform for concerned stakeholders to discuss the current state of the negotiations and what they could mean for citizens and democracy on both sides of the Atlantic.

Another new site is eu-secretdeals.info, which has an interesting emphasis on publishing leaked documents for both TTIP and the Canada-EU trade agreement (CETA):

By publishing negotiating texts, that reached us from anonymous sources, and by providing critical analysis of these texts, we hope to enable parliamentarians, academics, civil society organisations, media and the public to understand what the EU, the US and Canada are trying to do during the negotiations.

We are committed to a more transparent and democratic EU and international trade policy. And we invite all interested NGOs, academics and progressive political actors to contribute to this site with their insights and analysis of the leaked investment texts and investor-state dispute settlement generally.

As that suggests, the investor-state dispute settlement (ISDS) element of TTIP (and CETA) remains problematic.  In fact, the main organisation that monitors this area - UNCTAD, the United Nations Conference on Trade and Development - published an important analysis [.pdf] of just how serious those problems were back in June 2013 (I've only just come across it, thanks to this excellent Swedish post rebutting the European Commission's attempts to justify ISDS that I wrote about my previous update.)

Here are the main issues with ISDS, as perceived by UNCTAD:

Legitimacy and transparency

Probably the main concern here, that ISDS will undermine measures in the public interest.

Arbitral decisions: problems of consistency and erroneous decisions

As UNCTAD points out, the decisions of the ISDS tribunals are often inconsistent, which makes them a nightmare to plan for and deal with - and hardly suitable for a treaty like TTIP.

Arbitrators: Concerns about party appointments and undue incentives

The members of ISDS tribunals may not be impartial, making their judgments even more problematic.

Cost- and time-intensity of arbitrations

ISDS cases typically cost around $8 million, which makes them punitively expensive. 

Those are the "old" problems, well-known for some time.  But new ways of abusing the ISDS system are cropping up all the time.  For example, an important new report from Corporate Europe Observatory (CEO) exposes how ISDS in existing treaties are being used in an attempt to extract huge sums from European nations worst-hit by the financial crisis:

For a long time, European countries were left unscathed by the rising global wave of investor-state disputes which had tended to target developing countries. In the wake of the global financial crisis, however, corporations and investment lawyers have turned their eyes to potential pickings in Europe. An investment regime, concocted in secretive European board rooms, and that gives corporations powerful rights to sue governments, has finally come home to roost.

Here's how it works:

Profiting from Crisis looks closely at how corporate investors have responded to the measures taken by Spain, Greece and Cyprus to protect their economies in the wake of the European debt crisis. In Greece, Poštová Bank from Slovakia bought Greek debt after the bond value had already been downgraded, and was then offered a very generous debt restructuring package, yet sought to extract an even better deal by suing Greece using the Bilateral Investment Treaty (BIT) between Slovakia and Greece. In Cyprus, a Greek-listed private equity-style investor, Marfin Investment Group, which was involved in a series of questionable lending practices, is seeking €823 million in compensation for their lost investments after Cyprus had to nationalise the Laiki Bank as part of an EU debt restructuring agreement. In Spain, 22 companies (at the time of writing), mainly private equity funds, have sued at international tribunals for cuts in subsidies for renewable energy. While the cuts in subsidies have been rightly criticised by environmentalists, only large foreign investors have the ability to sue, and it is egregious that if they win it will be the already suffering Spanish public who will have to pay to enrich private equity funds.

This is a great demonstration of how ISDS clauses can be misused.  These debt restructuring measures were brought in at the behest of the European Commission: the countries had no choice in the matter if they wanted EU support.  The austerity measures they formed part of have pushed large numbers of people into poverty, and yet the investors who have bought up debt cheaply are now trying to extract large sums from cash-strapped governments.  If the investors win, that money will come out of the public budget, and will inevitably mean further cuts in health services, education etc.

These ISDS cases have arisen purely from existing intra-EU treaties: imagine how things will be when US companies can join in.  And if you think only a few multi-national companies are involved, think again. As CEO says:

A total of 75,000 cross-registered companies with subsidiaries in both the EU and the US could launch investor-state attacks under the proposed transatlantic agreement. Europe’s experience of corporate speculators profiting from crisis should be a salutary warning that corporations’ rights need to be curtailed and peoples’ rights put first.

Of course, the European Commission's response to all these major issues is to say that we shouldn't worry, because it will all be sorted out in TTIP.  But as a previous Update showed, its attempts to do that in CETA don't inspire confidence.  That was based on some excellent work by the Seattle to Brussels Network; but I've recently discovered another, completely independent analysis of the same documents, this time from the International Institute for Sustainable Development [.pdf].  It's extremely thorough, and its conclusions are unequivocal:

In the end, and whatever the reason for the disconnect, we conclude that the actual draft legal texts in the public domain show that the European Commission’s assertions [about improving ISDS in CETA] are in most respects incorrect when compared to the draft legal text. The technical legal analysis is set out on each specific point below. In effect, the analysis indicates that the standards by which the European Commission itself seeks to demonstrate the success of the drafting actually show that the drafting has failed to meet its stated objectives, in fact, sometimes with the exact opposite result.

Here, though, I want to concentrate on one particular aspect that concerns "Most-Favoured Nation (MFN)", which could extremely serious ramifications if it is included in TTIP.  The situation for CETA is as follows:

Article X.8 of the November 2013 draft [of CETA] contains the MFN provision. In essence, it requires, for present analytical purposes, a European state to treat a foreign investor from Canada no less favourably than it treats an investor from any third state. The problem arises from the legal reality that such treatment has been defined in investment arbitrations as including the rights of other investors under investment treaties with the host state. So, if an EU member state that has a Canadian investor also has a treaty with an African, Latin American or any other state, the investor from Canada can import the provisions of that treaty if they are more favourable than the provisions of the CETA.

The impact of this is straightforward. The European Commission statement notes the need to “bring very significant clarifications” in order to give arbitrators “strict and detailed guidance when these provisions are invoked by an investor.” Now, we have already seen from the preceding analysis that this objective has not been met in the November 2013 draft text. But let us suppose, for the sake of understanding the current issue, that it had been met. The MFN provision would in any event undo this.

Arbitrators now routinely allow investors to essentially cherry-pick provisions from other investment treaties that are more favourable to it. To continue our example of a Canadian investor, let’s assume it makes a claim against an EU member state for expropriation under CETA. The exceptions and carve-outs would apply to it. However, if the same state has an old treaty with any other state, the investor can argue that the expropriation provision from that treaty, without the exceptions or carve-outs included in the CETA, should apply to its claim as a result of the CETA’s MFN provision. The benefits to the states of the more careful drafting are thus, quite simply, lost.

So, in the case of CETA, all of the European Commission's much-vaunted "improvements" to ISDS are completely nullified by the presence of this MFN clause.  We don't know if a similar MFN section will be in TTIP, but if it is, and it is as badly-worded as in CETA, it will have a similarly disastrous effect.  When the European Commission releases its ISDS consultation document (soon?) it must make absolutely clear what its position on MFN is.

However,  maybe it won't matter.  An article published todayin the German newspaper Die Zeit claims that the German government wants ISDS out of TTIP.  Obviously, that needs to be confirmed, but if it's true, it's hard to see how the European Commission will be able to push an agreement through if it contains ISDS.

Never a dull moment in the world of TTIP....

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TTIP Update XVII

In a previous update a couple of months ago, I discussed a low-key meeting that took place between  the European Commission and some of the biggest companies in the world (mostly from the US), which essentially revealed that the Commission was, after all, intending to bring back some of ACTA's worst ideas.  Things just became rather more worrying on this front as the result of the following announcement in the US:

This morning, President Obama nominated Robert Holleyman as deputy U.S. trade representative. If confirmed by the U.S. Senate, Holleyman will help lead the effort to pass the controversial Trans-Pacific Partnership trade deal.

Notably, Holleyman is a former lobbyist who led efforts to pass the Stop Online Piracy Act legislation, better known as SOPA, when he was leader of the Business Software Alliance. The SOPA debate (along with its sister legislation, PROTECT-IP, in the Senate) brought a spotlight on industry efforts to undermine Internet freedom through what many considered to be draconian intellectual property policy.

As that notes, he was formerly head of BSA; that means that he is no friend of open source.  Coupled with the European Commission's admission that it wants to bring in "Christmas list" of new demands in the area of intellectual monopolies, makes TTIP alll-the-more dangerous for both free software and online freedom.

Alongside that bad news, we've also had some good news in the shape of two significant leaks of relevant documents.  One concerns the Canada-EU trade agreement (CETA), which I discussed recently.  The German Pirate Party has obtained a copy of part of this agreement (.pdf), dating from December last year - quite recent, then.  Interestingly, even here there are sections that have still not been finalised. The leaked section concerns intellectual monopolies; a good early analysis of it has been made by Ante Wessels of FFII.  In particular, he compares its measures to those found in ACTA:

The damages in CETA do not contain the much criticized retail price damages, which were part of ACTA, the Anti-Counterfeiting Trade Agreement, and are part of the EU – Singapore trade agreement proposal.

The injunctions do not contain “inaudita altera parte”, the much dreaded possibility to decide on injunctions without the infringer present.

So far so good. But, I do not see what was footnote 2 in ACTA, and is footnote 33 in the EU – Singapore agreement, the right to exclude patents from the scope of the civil enforcement section.

All the strong enforcement measures (damages, injunctions, provisional measures) will be available for software patent trolls.

The strong enforcement measures further create problems for access to knowledge and taking part in culture, for remix artists, and for inventors involved in sequential invention – like software developers.

Bad news, in other words.  And because agreements tend to build on one another - as I mentioned last year - it's very likely some of this language will re-appear in TTIP. 

The other leak is the European Commission's draft proposal on trade in services, investment and e-commerce for the TTIP negotiations [.pdf], obtained by the German newspaper Die Zeit.  Although it dates from July last year, it still offers some useful insight into the Commission's general thinking as regards TTIP.  That's also true of its latest official document, entitled "EU US Trade Agreement – The Facts" [.pdf]  This is very similar to the text that I discussed in October last year, headed "Incorrect claims about investor-state dispute settlement".  It takes the same form: statements allegedly made about TTIP, and their rebuttal.  For example:

TTIP will enable foreign firms to undermine EU laws. FALSE

An existing law cannot be undermined by a trade agreement. An existing ban on fracking or chlorine - washed chicken cannot be questioned, for example.

Although that's true, the European Commission omits to mention that  foreign firms will be able to undermine *future* laws by threatening to sue the EU or national governments if they are brought it.  This chilling effect is not merely theoretical: it has been happening for years in Canada, where NAFTA's ISDS chapter has allowed US companies to undermine proposed legislation in just this way.  If TTIP includes ISDS, it seems certain US companies will do the same here in Europe.  And remember that the great thing about such threats is that they can work even when it is not at all clear that the company would win in the ISDS tribunals: the mere possibility of such expensive actions is usually enough to "persuade" governments to back down.  That's the real danger here.

Moreover, from a true statement, the European Commission rather naughtily segues into an untrue one:

What the agreement does provide for – and this is in the EU's interest - is a ban on discrimination. That means that what applies to domestic firms must also apply to foreign firms.

What the Commission elides here is the fact that US companies will actually have *more* rights than EU companies in Europe, because EU companies are not able to sue there for any claimed "indirect expropriation of future profits", as US companies can using ISDS.  So introducing ISDS in TTIP will actually put EU companies at a disadvantage in their home markets.

TTIP will lead to privatisation in areas such as health care, water and education. FALSE

The TTIP Agreement has nothing to do with privatisation – only governments can decide that. No free trade agreement obliges the EU's Member States to liberalise or privatise the water industry or other public services, such as public health systems public transport or the education system.

Again, this misses the point - wilfully, perhaps.  The problem with TTIP is not that it will force nations to privatise services, but that once they are privatised, and provided by a US company, it will effectively be impossible to re-nationalise them.  That's because under ISDS that would amount to an "expropriation" of future profits, which would mean that the US companies concerned could sue the governments for those "lost" monies.  That would make re-nationalisation punitively expensive, and ensure that it rarely happened.

TTIP will restrict the rights of internet users. FALSE

Both the EU and the US have efficient regulations for protecting intellectual property rights, even though their respective regulations achieve their goals in different ways. The TTIP aims to simplify trade between the EU and the US without weakening these regulations. The TTIP will not be "ACTA throug h the back door" and it will not call into question the European Parliament's rejection of the trade agreement on combatting piracy of labels and products (ACTA).

As I noted above: the European Commission has already said to corporates that ACTA by the back door is precisely what it hopes to achieve here; the appointment of one of the main SOPA supporters as a key US negotiator guarantees that this will be high on the agenda.

The TTIP is undemocratic and elected politicians have no influence over it. FALSE

Both the EU's national parliaments as well as MEPs in the European P arliament have considerable influence on the TTIP negotiations. The European Commission is negotiating the trade agreement in the name of, and with a mandate from, the EU's Member States. The EU's negotiators meet weekly with representatives of the dem ocratically elected governments of the Member States in order to brief them 'live' before, during and after negotiating rounds and to take into consideration their positions. The European Parliament is also regularly informed of the state of the negotiati ons so that the positions and interests of the democratically elected parliamentarians can also be taken into consideration in the negotiations. Finally, it will be the EU Member States and the European Parliament which will have the last word on the TTIP and so it is obvious their interests will be taken into consideration.

This is nonsense.  Here's the reality:

USTR demands for hyper-secrecy in the Trans Atlantic Trade and Investment Partnership (TTIP) continue to be a major block to continuing negotiations. The current issue under discussion is access to US proposals by EU member states — which are of course themselves sovereign countries. The member states are demanding access to the text of proposals that would constrain their domestic law making, as they ave had in all other EU trade agreements (e.g. the recent EU-Canada FTA). But Inside US Trade (2/28/2014) reports that USTR Froman has offered only that “he might be able to allow the European Commission to share the U.S. negotiating documents it receives if they were accessible only in a secure reading room.”

As that makes clear, even the "representatives of the democratically elected governments of the Member States" don't have access to all the relevant documents: they are currently being offered peeks in a "secure reading room" - how insulting is that? For MEPs, it's even worse:

There is no word yet on whether EU Members of Parliament will obtain access to consolidated TTIP text after each negotiation round, as was provided in at the end of the negotiation of the of the Anti-Counterfeiting Trade Agreement (ACTA). Increased access to ACTA text for EU (but not US) legislative staff followed a March 2010 Resolution of the EU Parliament lambasting the Commission for its intense secrecy, including accusations of violations of the Lisbon Treaty governing EU affairs.

If MEPs can't even see the text, they are certainly not informed.  There's no way that they can exert "considerable influence" as the Commission claims if they don't know what's in the negotiating texts.  And that "last word" is literally that: a single, "yes" or "no" vote, where MEPs will be under tremendous pressure to accept the horrors - things like ISDS - for the sake of some much-needed growth.  Talking of which:

Why bother? The Transatlantic trade and Investment Partnership could have a similar effect to a package of economic stimulus measures. It could boost growth by 0.5% of GDP or some €120 bn, equivalent to €500 for every EU household because savings for companies also mean cheaper products, higher quality and more choice for consumers.

Yet again, the European Commission fails to note that the extra 0.5% GDP growth is compared to what would be obtained without TTIP *in 2027*, after 10 years of the agreement.  That means that even under the most favourable circumstances - something else it also fails to note - TTIP will increase GDP by just 0.05% each year on average.  It makes no sense to talk about the cumulative GDP effect: it might as well say that TTIP will produce 50% GDP growth - but without mentioning that would only be in 2117.  The only meaningful measure is the extra GDP growth that TTIP will produce *each year*, and that figure is 0.05%. 

Claiming that TTIP "could boost growth by 0.5% of GDP" without explaining that this is the  cumulative, not annual, figure is a serious misrepresentation of what its own projections suggest might happen in the best-case scenario - and certainly not a "fact" about the EU-US trade negotiations.

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TTIP Update XVI

The European Commissioner responsible for TTIP, Karel De Gucht, has just held a "stocktaking" of the negotiations with his US counterpart, Michael Froman.  One thing that's clear is that the talks aren't moving as fast as politicians had hoped when they announced the project.  For example, nobody is talking about finishing this year, and even 2015 is looking hard.

Nonetheless, the stocktaking represents the start of the next phase, when the serious bargaining begins.  That's led to more information beginning to flow about TTIP, which is good news given the almost total secrecy in which the negotiations are being conducted.

Talking of transparency, and its absence, there's a very interesting report in the Financial Times on the subject (subscription required, but limited free access available with simple registration.)  It seems that one of Washington’s "main negotiating priorities" will be - you guessed it - transparency, but only in the domain of regulations:

There is, they argue, too little transparency in the current European process, with businesses given too few opportunities to see or comment on proposed regulations.

US companies also complain that they are often shut out of the regulatory process in Europe because the EU system can depend on closed consultations with local industry groups that make it difficult for outsiders to register their concerns.

Specifically, here's what the US wants:

The US has proposed that EU regulators be required to publish the proposed texts of regulations and open them to public comment. It also wants regulators to be required to consider comments and explain why they had adopted – or failed to adopt – outside suggestions when they finalise regulations.

US officials argue that there is a growing emphasis on transparency in regulation and greater public consultations are increasingly important.

Well, that's certainly true, and since TTIP is by the European Commission's own admission 80% about regulations, that same logic would suggest that the proposed TTIP texts should be published for public comment.  And as far as the concern that "secret" negotiating documents can't be revealed for fear that they will undermine tactical plans, that's simple to address: publish all documents once they are "tabled" - that is, revealed to the US negotiators.  At that point, they are no longer secret, so publishing them can't do any harm, but allows the public to see what is being done in their name.

Aside from this deeply ironic call for "transparency" from the US negotiators, who are even more paranoid about secrecy than the EU side, there is another little tidbit about the negotiations, which comes courtesy of CETAWatch, a Canadian organisation focussed on the Canada-EU trade agreement I've discussed before.   According to CETAWatch, CETA's investment chapter will be published by the European Commission in March, as part of its imminent public consultation on the highly-controversial ISDS provisions.  That would seem to suggest that the European Commission's forthcoming proposals for ISDS, which the EU public will have the chance to comment on, will be based on CETA.  That makes sense, because we know from another leak that CETA's ISDS provisions contain many of the modifications that the Commission has said it will seek in TTIP.  Unfortunately, those modifications do not, in fact, address the deep underlying problems of ISDS, as I've discussed in another TTIP Update.

That obviously raises the question: what will the US be proposing on ISDS?  Fortunately, we have another (public) document, that gives us a good idea.  It's called the US Model Bilateral Investment Treaty, and was released a couple of years ago.  I won't go through it because it's hard to tell how close it will be to TTIP; moreover, the US Institute For Policy Studies has already produced a useful analysis that points out its many deficiencies.

Significantly, it is ISDS that lies at the heart of a column published recently in the Wall Street Journal by Ken Clarke.  It isn't the first time that Clarke has defended ISDS: he did it back in November last year, when he attacked George Monbiot for his article in the Guardian pointing out the dangers of TAFTA/TTIP, and of ISDS in particular.

I want to explore Clarke's latest article in some detail here, because it shows us the latest arguments that are being deployed by those seeking to defend ISDS.  After some misleading comments that ISDS is "not about setting standards for consumer or environmental protection" - which is true, but it does allow corporates to challenge existing and cast a chill over future regulations in these areas - Clarke moves on to his main argument:

Investment protection of this sort is a longstanding policy of the U.K. and the rest of the European Union. Investment protection clauses are reflected in more than 1,400 bilateral investment treaties that have been concluded by EU member states. They have been included in every British investment deal, without doing the slightest damage to consumer protection or undermining our sovereignty or our legal system.

Despite the ubiquity of such clauses, no successful investment protection case has ever been brought against the British government by a foreign company. Yet bilateral investment agreements are not always honored by the countries that sign up to them.

That figure of 1,400 bilateral investment treaties has been rolled out by the European Commission, too.  As I've noted before, the reason these treaties have not proved problematic for either the EU - or the UK - is that they were all with relatively small nations, often emerging economies.  As such, they were generally the *recipients* of EU or UK investment; the ISDS clauses were there to protect the EU and UK investors.  There was no "damage" to the sovereignty of the EU or the UK legal system because there were few or zero companies able to take the UK to ISDS tribunals.

Contrast that situation with TTIP: there we are talking about giving US companies - surely the most litigious in the world - the power to sue the EU and member states (including the UK) over court cases or legislation they think causes their profits to suffer.  Given the US tendency to sue first and ask questions later, this will inevitably lead to a flood of actions against EU nations.  There is simply comparison with those 1400 BITs.

And when the terms are breached, it is companies—small and medium firms, as well as big businesses—that are the losers. In cases like these, access to proper legal redress is vital.

Well, it's important to note that ISDS gives companies *additional* legal redress: they are already able to use the local courts.  The argument that such courts may be biased simply doesn't apply to TTIP - unless Clarke wishes to suggest that the US is a banana republic.  But there's something that he omits to mention here.  Not only could US companies use ISDS provisions in TTIP to sue the EU or members states (or quite possibly both), but the costs for defending those actions would be borne by the tax payer.  That is, this is a classic case of privatising the profits, and socialising the costs:  companies get to keep any awards they win in ISDS tribunals, but it is the public that must pay when countries lose there.

But investment protection is not simply a rod for business to beat up government, as some pressure groups have recently claimed. The arbitration system is independent and cases are decided on their merits. Investors do not win them all.

According to a study by the United Nations Conference on Trade and Development, only 31% of concluded investment-protection cases have been resolved in favor of the investor.

The arbitration system can hardly be called "independent" when tribunals are made up of the same lawyers that represent companies using them.  There are no measures to prevent conflicts of interest.  As for that figure of 31% of cases being resolved in favour of the investor, that's true, but a historical aggregate over the last 20 years.  Here's what happened in 2012 according to UNCTAD's 2013 review of ISDS cases:

In 70% of the public decisions addressing the merits of the dispute, investors’ claims were accepted, at least in part. Nine public decisions rendered in 2012 awarded damages to the claimant, including the highest award in the history of ISDS (US$ 1.77 billion) in Occidental v. Ecuador, a case arising out of a unilateral termination by the State of an oil contract.

That is, more recently, cases have been concluded in favour of corporates.  Worryingly, there is another upward trend  here:

In 2012, 58 new cases were initiated, which constitutes the highest number of known treaty-based disputes ever filed in one year and confirms that foreign investors are increasingly resorting to investor-State arbitration.

Finally, Clarke wheels out the old line about improving ISDS:

Moreover, the European Commission—which is beginning a three-month public consultation on its approach to investment protection in the treaty with the U.S.—has made clear that any agreement will include safeguards to ensure that the arbitration process is transparent and that businesses cannot thwart governments' legitimate public-policy objectives.

First, the "safeguards" that the European Commission has placed in CETA have major shortcomings;  and secondly, it's not at all clear whether the US will accept even those modest changes.  So there is no way Clarke can claim that TTIP will include safeguards that "ensure" that "businesses cannot thwart governments' legitimate public-policy objectives" - it's quite likely there won't be.  And without effective safeguards, the EU and UK would be exposed to the very real - and very grave - problems that ISDS gives rise to.

Full list of previous TTIP Updates.

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TTIP Update XV

When it became clear that the EU and US were planning to start negotiations for what would be the world's largest trade agreement, people naturally started analysing its various aspects and possibilities.  This formed a kind of conceptual framework for TTIP/TAFTA.  But in a stunning demonstration of the fact that it's foolish to think that those frameworks are anything more than contingent and provisional, Edward Snowden's revelations about massive spying by the NSA (with quite a lot of help from GCHQ) has introduced an important new element.

Although there was some talk of cancelling the negotiations completely in the wake of the leaks, that was never a realistic possibility given the vested interests here.  But as Snowden's documents have continued to appear, each one filling out the picture of total online surveillance, so the anger has been building up in Europe.  One manifestation of that came in a speech from Viviane Reding , Vice-President of the European Commission, EU Justice Commissioner who said:

data protection is a fundamental right. The reason for this is rooted in our historical experience with dictatorships from the right and from the left of the political spectrum. They have led to a common understanding in Europe that privacy is an integral part of human dignity and personal freedom. Control of every movement, every word or every e-mail made for private purposes is not compatible with Europe's fundamental values or our common understanding of a free society.

She then went on to make the following significant call:

This is why I warn against bringing data protection to the [TTIP] trade talks. Data protection is not red tape or a tariff. It is a fundamental right and as such it is not negotiable.

That was back in October.  At around the same time, the  Civil Liberties, Justice and Home Affairs (LIBE) committee was conducting a major inquiry into the mass surveillance of EU citizens.  It has just agreed its final report and recommendations:

The text, passed by 33 votes to 7 with 17 abstentions, condemns the “vast, systemic, blanket collection of personal data of innocent people, often comprising intimate personal information”, adding that “the fight against terrorism can never be a justification for untargeted, secret or even illegal mass surveillance programmes”.

"We now have a comprehensive text that for the first time brings together in-depth recommendations on Edward Snowden's allegations of NSA spying and an action plan for the future. The Civil Liberties Committee inquiry came at a crucial time, along with Snowden´s allegations and the EU data protection regulation. I hope that this document will be supported by the full Parliament and that it will last beyond the next European Parliament's mandate", said rapporteur Claude Moraes (S&D, UK), after the vote.

The recommendations are wide-ranging, but in this update's context here's the key one:

Data protection must be excluded from trade talks

Parliament's consent to the final Transatlantic Trade and Investment Partnership (TTIP) deal with the US “could be endangered as long as blanket mass surveillance activities and the interception of communications in EU institutions and diplomatic representations are not fully stopped and an adequate solution for data privacy rights of EU citizens, including administrative and judicial redress is not found”, MEPs say.

Parliament should therefore withhold its consent to the TTIP agreement unless it fully respects fundamental rights enshrined in the EU Charter, the text adds, stressing that data protection should be ruled out of the trade talks.

It's worth exploring what that means in practice. 

The European Parliament has no power to demand that data protection be removed from TTIP, so instead the LIBE committee wants to apply some pressure indirectly.  Since any final TAFTA/TTIP agreement must be approved by a plenary vote in the European Parliament, a statement that it would not give its approval if there were a data protection chapter means that the European Commission, which is responsible for the negotiations, would be aware of the risk of including it.  It might decide that it would be better to drop data protection in order not to antagonise the European Parliament before the big "yes" or "no" vote on TTIP.

However, the US has been adamant that data protection must be included in TTIP: that's because all the most powerful US Internet companies – Google, Microsoft, Facebook etc. - need it so that they can continue to take data about European citizens out of Europe and use it as they wish.  They do this currently under the so-called Safe Harbour scheme, which is, in fact, not very safe for Europeans – something mentioned by the LIBE committee's report:

MEPs call for the "immediate suspension" of the Safe Harbour privacy principles (voluntary data protection standards for non-EU companies transferring EU citizens’ personal data to the US). These principles “do not provide adequate protection for EU citizens” say MEPs, who urge the US to propose new personal data transfer rules that meet EU data protection requirements.

The Terrorist Finance Tracking Programme (TFTP) deal should also be suspended until allegations that US authorities have access to EU citizens’ bank data outside the agreement are clarified, say MEPs. The EU-US data protection framework agreement to be struck in spring 2014 must ensure proper judicial redress for EU citizens whose personal data are transferred to the US, they add.

If the LIBE committee's recommendation to keep data protection out of TAFTA/TTIP is accepted by the European Parliament, this will create a big problem for the European Commission's TTIP negotiators, since the US will be pushing very hard to keep data protection in the agreement.  The European Parliament vote is scheduled to take place in March, and I'll be writing about what we should be saying to our MEPs nearer the time.

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TTIP Update XIV

In my previous update, I reported on the major news that the highly-contentious investor-state dispute settlement (ISDS) chapter of TAFTA will be put on hold – nominally, at least.  This is supposedly to give everyone a chance to express their views on the subject.  Of course, whether any of the public's views will be heeded is quite another matter.  In fact, I'm willing to predict that the European Commission will only make a few tiny cosmetic changes to its plans – which it will nonetheless trumpet loudly.  It will also claim that this three-month consultation is "proof" of its transparency, whcn in fact all it does it make the lack of it for everything else even more painfully obvious.

We can probably guess what the promised "proposed EU text for the investment part of the talks which will include sections on investment protection and on investor-to-state dispute settlement, or ISDS" will contain.  That's because various people from the European Commission's TTIP team have emphasised that the "new and improved " version of ISDS that the Commission wants for TAFTA/TTIP will be based on the similarly "new and improved" version found in the EU-Canada free trade agreement, generally known as CETA.

CETA is now stuck in a strange kind of limbo: although the EU and Canada claimed they had a "technical agreement" back in November (whatever that means), they are still refusing to release any draft version of the text.  Even more extraordinary is the fact that the EU's ambassador to Canada has recently said the following:

“We think that it might be in about six months that we have a text, which will be not the final text, I think that for the final text we have to wait two years — it will be 2015,” she said.

It's true that the European Commission has released a kind of teaser for the ISDS chapter in CETA, called "Investment Provisions in the EU - Canada free trade agreement (CETA)" [.pdf].  But much better than that, some kind soul has leaked two key ISDS texts to the Trade Justice Network; these are the Draft CETA Dispute Settlement (dated November 15) and the Draft CETA Investment Text (dated November 21), both available as PDFs from the Trade Justice Network leaked documents page.

The availability of those very recent leaks, which are presumably very close to the latest versions, has allowed the Seattle to Brussels Network to compare them with the claims made in the European  Commission document about ISDS, and to come up with some very interesting discrepancies.  They give us a very good idea of the kind of things the Commission will doubtless be saying in its attempt to convince people that it has addressed the huge problems with investor-state dispute settlement – and why in fact it hasn't really done that.

Here's what  the Seattle to Brussels Network (SBN) has to say [.pdf]:

The first part of the [European Commission's CETA] note deals with the provisions of the investment protection chapter. In the introductory paragraph, the Commission claims that “the EU and Canada agreed to bring very significant clarifications to the key substantive provisions” and that “the arbitrators will now have strict and detailed guidance when these provisions are invoked by an investor”. However this is not the case, especially not with the Fair and Equitable Treatment (FET) standard as shown below.

Here's what the Commission says about FET in its note:

For the first time ever , the CETA agreement provides for a precise definition of “Fair and Equitable treatment”. This will avoid too wide interpretations and provide clear guidelines to tribunals.

That makes clear the central nature of FET definitions in terms of limiting the scope of ISDS.  Here's SBN's response:

Under point 1 of the first part [of its note], the Commission claims that CETA reaffirms the right to regulate. This is not the case. There is not a general paragraph reaffirming this right in the [leaked]  21 November CETA text that would apply to the whole text. There is only such a paragraph in the annex on expropriation. And expropriation is less used to attack general policies than the FET standard.

In other words, the Commission is stretching the truth here.  The same is true in point 2 of the note, as SBN explains:

In its note the Commission only presents the closed list [of situations when a Fair and Equitable Treatment situation arises] which sums up manifest breaches that everyone can agree with (like discrimination on racial grounds) and only one of the other articles. However that other article is misrepresented. The Commission says that it means that “a breach of legitimate expectations is limited to situations where the investments took place ONLY (my emphasis) because of a promise made by the state that was subsequently not honoured”. This is not what the article in the 21 November CETA text says. It in fact says “when applying the above FET obligation a tribunal may take into account whether a Party made a specific representation to an investor to induce a covered investment, that created a legitimate expectation”. It does not say that the investment only took place because of this representation. So the actual scope of the article is broader than the Commission wants us to believe.

In other words, the Commission is not being totally frank here.  The same happens elsewhere:

Under point 5 the Commission says that the agreement makes clear that the obligation to provide  “full protection and security” does not cover protection against changes of laws and regulations. The 21 November CETA text does not say that with so many words. It only says that this obligation refers to physical security of investors and covered investments.

Again, the Commission seems to be claiming more than it should.  In the section dealing with a binding code of conduct for ISDS arbitrators – supposed to address some of the worst flaws in the present system - things are even worse:

In the second part on ISDS the Commission claims under point 4 that CETA has introduced a binding code of conduct for arbitrators. However that code is not there yet. It will be adopted by a joint committee within two years after the entry into force or provisional application (this is undecided in the 15 November CETA ISDS text).

Here's what the actual text from the leaked document says:

The Committee shall, on agreement of the Parties, and after completion of the respective legal requirements and procedures of the Parties, decide to:

a) establish and maintain the list of arbitrators pursuant to Article x- 10(4)(Constitution of the
Tribunal);

b) adopt a code of conduct for arbitrators to be applied in disputes arising out of this chapter, which may replace or supplement the rules in application, and that may address topics including:

i. disclosure obligations;
ii. the independence and impartiality of arbitrators; and
iii. confidentiality.

Notice that it says that such a code of conduct for ISDS arbitrators may includes those topics – but on the other hand, it may not.  SBN goes to point out:

worse, the text says that the arbitrators have to follow this code OR the International Bar Association Guidelines on Conflict of Interest in International Arbitration (which is a general code not geared to ISDS) which means that the code is NOT binding.

That's because arbitrators can simply carry on using the existing guidelines from the International Bar Association, and simply ignore anything more rigorous that CETA might purport to bring in.  Once again, the European Commission's claims don't stand up to scrutiny.

There's more bad news on the transparency front, where the Commission boasts about providing:

Full transparency - all documents will be public, all hearings open, interested parties (NGO’s) can make submissions. This is the first agreement applying in substance the new United Nations rules on transparency in ISDS (UNCITRAL).

Sounds fab, no?  Alas, this is yet more baloney from the Commission.  As SBN points out, there are some massive loopholes that render this grand-sounding promise worthless.  Here's the leaked text:

1. Subject to paragraphs 2 and 3, hearings shall be public.

2. Where there is a need to protect information or the integrity of the arbitral process pursuant to Article 5, the arbitral tribunal shall make arrangements to hold in private that part of the hearing requiring such protection.

3. The arbitral tribunal may make logistical arrangements to facilitate the public’s right of access to hearings (including where appropriate by organising attendance through video links or such other means as it deems appropriate).

The SBN notes that another of the European Commission's strongest claims is also useless in practice:

Under point 10 the Commission states that there is “absolute clarity” that a state cannot be forced to repeal a measure. The 15 November CETA text does indeed allow the Arbitration tribunal to only impose monetary damages or restitution of property (which may also be replaced by monetary damages). However it is clear that the threat of such damages or the threat to use the ISDS may be enough for governments to repeal measures as has happened so often in out of court settlements between the investor and the targeted governments.

Yes, it may be true that the EU or Canada cannot be "forced" to repeal legislation, but the threat of hundreds of millions of euros in fines may well encourage them to do that of their own "free" will.

Finally, SBN has spotted something really important that for some reason the European Commission didn't want to bang the drum about:

The chapter foresees wide competences for a joint “Committee on Services and Investment” so that it can – after completion of the respective legal requirements and procedures of the Parties - adopt and propose amendments, rules, interpretations, etc. This will add to make CETA a “live” agreement that can be adapted to circumstances. Question is however how the parliaments, civil society and the general public will be able to scrutinise the continuous expansion of the agreement.

What that means is that the ISDS measures in CETA aren't fixed, but can always be altered afterwards.  The whole edifice turns out to be built on sand, since the European Commission's claims about  how it has improved ISDS – claims that, as we've seen, are dubious at best – become provisional and possibly temporary. 

Worryingly, this is exactly the approach that the EU and US seems to be taking with the regulatory chapter for TAFTA/TTIP.  As I noted in TTIP Update VIII, the plan is to turn TAFTA/TTIP into a "living agreement" through a "Regulatory Council", essentially made up of corporates that will have the ability to block EU and US legislation that they don't like, and help push through things that they do.  It's an extremely clever approach that allows criticisms to be de-fanged by starting off with a relatively modest base agreement, and then gradually subverting over the years.  The CETA leaks show the same to be true for ISDS.

What the Seattle to Brussels Network's analysis demonstrates is the clear gap between rhetoric - what the European Commission is saying - and reality - what it is doing behind the scenes.  We are only able to expose that attempt to mislead the public thanks to leaks of the negotiation documents that give us the full picture.  It's yet another reasons why we need full transparency – all tabled TTIP document made public immediately - not the token kind currently being offered by the Commission with its 3-month ISDS  consultation.

It's also why we should be extremely sceptical about the European Commission's claims that it will address ISDS's serious deficiencies, and that including it in TAFTA won't threaten European sovereignty and democracy.  If CETA is anything to go by, that's simply not true.  In any case, if something you don't need is broken, you don't try to fix it, you throw out.  We must do the same for ISDS in TTIP.  The three-month pause must become a permanent moratorium.

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TTIP Update XIII

As regular readers will have noticed, so far the dominant theme of these TAFTA/TTIP updates has been investor-state dispute settlement (ISDS).  That's largely because it represents such a clear threat to national sovereignty, that it's the most pressing issue, even this early in the negotiations.  Naturally, I'm not the only person to think that, and many others, including leading civil society organisations, have expressed their grave misgivings about the inclusion of what amounts to a chapter placing foreign corporations above nations.  It seems that crescendo of concern has had an effect.

In a rather surprising turn of events, the European Commission has just published the following:

EU Trade Commissioner Karel De Gucht today announced his decision to consult the public on the investment provisions of a future EU-US trade deal, known as the Transatlantic Trade and Investment Partnership (TTIP). The decision follows unprecedented public interest in the talks. It also reflects the Commissioner's determination to secure the right balance between protecting European investment interests and upholding governments’ right to regulate in the public interest. In early March, he will publish a proposed EU text for the investment part of the talks which will include sections on investment protection and on investor-to-state dispute settlement, or ISDS. This draft text will be accompanied by clear explanations for the non-expert. People across the EU will then have three months to comment.

Against a background of a dogged refusal to release any texts, or to ask the public in any way about its opinion, that's a startling U-turn.  It's clearly taken place because the European Commission has finally realised that trying to re-gain control of the narrative by releasing a few "fact sheets" – like the one I discussed in a previous update -  just isn't working.  Unfortunately for the Commission, it doesn't seem to have come up with any new, compelling arguments why ISDS must be part of TTIP:

EU Trade Commissioner Karel De Gucht said: "Governments must always be free to regulate so they can protect people and the environment. But they must also find the right balance and treat investors fairly, so they can attract investment. International investment agreements like TTIP should ensure they do both. But some existing arrangements have caused problems in practice, allowing companies to exploit loopholes where the legal text has been vague. I know some people in Europe have genuine concerns about this part of the EU-US deal. Now I want them to have their say. I have been tasked by the EU Member States to fix the problems that exist in current investment arrangements and I'm determined to make the investment protection system more transparent and impartial, and to close these legal loopholes once and for all. TTIP will firmly uphold EU member states' right to regulate in the public interest."

As you can see, that is still assuming that the question is how to make ISDS better, rather than asking whether we need it.  Making it better will be hard, because it will requires the US to agree to any new measures.  Luckily, we don't need to hold those discussions, since any form of ISDS is completely unnecessary.  We know that because the Europe Commission's own figures prove it:

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 sidesof the Atlantic. It is estimated that a third of the trade across the Atlantic actually consists of intra-company transfers.

Transatlantic investment is not just flourishing, it is flourishing like nowhere else on earth.  So there is basically no problem to solve, and ISDS will add nothing but costs, both economic and political.  But you don't have to take my word for that.  I recently came across a fascinating document on the UK government's main gov.uk site entitled "Costs and benefits to the UK of an EU-US investment protection treaty" that explores precisely this issue of whether it is worth adding ISDS to TTIP.

Its genesis looks slightly complicated.  It is branded "LSE Enterprise", and its three authors come from the London School of Economics (LSE), University of Oxford and University of Wisconsin.  So it seems to be an independent report commissioned by the Department for Business, Innovation & Skills.  That means it can't be regarded as official UK government policy, but the fact that it appears on gov.uk means that it is still an official document.  It was published on 22 November, but I've only come across it.  I imagine that's partly because the UK government didn't want to publicise it too much, given its findings.

It runs to some 44 pages, but the final section sums things up neatly.  Its main conclusion is as follows:

There is little reason to think that an EU-US investment chapter will provide the UK with significant economic benefits. No two countries in the world exchange more investment than the UK and the US, and there is no evidence that US or UK investors view either country as suffering from the kinds of political risks against which investment treaties are supposed to protect. Moreover, existing evidence suggests that the presence of an EU-US investment chapter is highly unlikely to encourage investment above and beyond what would otherwise take place. US investors have generally not taken much notice of investment treaties in the past when deciding where, and how much, to invest abroad – even when dealing with far more questionable jurisdictions than the UK.

It also points out that:

There is little reason to think that an EU-US investment chapter will provide the UK with significant political benefits. The political relationship between Washington and Whitehall is exceptionally strong, and we are aware of no evidence that it is vulnerable to a meaningful risk of investor-state disputes that would become undesirably “politicized” in the absence of an investment treaty. Secondly, we find it unlikely that an EU-US agreement would make significant negotiating partners – like India and China – more or less willing to agree to an investment treaty with the EU. Finally, it is unclear whether the US is particularly keen on an investment protection chapter with the EU, which means the Commission may not be able to use such a chapter as an effective ‘bargaining chip’ in other trade and/or investment negotiations with Washington.

That point about China and India is crucially important: one of the reasons that the European Commission likes to claim we "must" have ISDS in TAFTA/TTIP is that it will set a precedent for future agreements with China and elsewhere.  The LSE team believes that this would be unlikely to make them more willing to accept a chapter on corporate sovereignty.

The LSE report then goes on to say:

There is some reason to expect an EU-US investment chapter will impose meaningful economic costs on the UK.

And also:

There is some reason to expect an EU-US investment chapter to impose meaningful political costs on the UK.

It summarises the entire situation as follows:

In sum, an EU-US investment chapter is likely to provide the UK with few or no benefits.

This is the key point that we need to get across when Mr De Gucht's consultation on ISDS opens: that his attempts to get rid of the "bad" bits of investor-state dispute settlement miss the point.  The fact is, ISDS simply has few if any benefits for any of the EU's member states, but many huge potential costs and problems for European citizens.  It should be dropped completely from TAFTA/TTIP.

Full list of previous TTIP Updates.

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