TTIP Update XXX

As well as all the developments I discussed in the previous TTIP update, plenty has been happening recently in the hotly-contested area of investor-state dispute settlement (ISDS).  The United Nations Conference on Trade and Development (UNCTAD) has published another of its informative reviews of developments in the ISDS field [.pdf].  This edition is particularly welcome since it focuses on the interaction between the EU and US in this area.  Here are some of its findings:

16 [ISDS] cases have been initiated against the US to date, among those not a single one originated from an investor from a EU Member State.

EU Member States have been respondents in 117 known cases, of which almost a quarter faced by one country (the Czech Republic). Several EU countries (e.g. Austria, Denmark or Finland) have faced no known ISDS claim to date. 88 of the 117 cases are intra-EU disputes.

To date, there are few (nine) known claims in the EU-US relationship. All of them were filed by US investors, constituting about seven per cent of all ISDS claims filed by US investors.

The nine cases also represent close to eight per cent of all cases faced by EU Member States (or close to one third, if intra-EU disputes are disregarded).

All nine cases were brought against “new” EU Member States.

That shows that already the EU suffers disproportionately from ISDS cases; including an ISDS chapter is likely to open the floodgates of US companies suing across the whole European Union.  One of the most interesting facts in the new report is the following:

The US-EU relationship is the largest in terms of the amount of FDI [foreign direct investment] stock held by investors from these countries in each other’s territories. 10 Investors from EU Member States hold a total of 1.6 trillion USD of FDI stock in the US, which represents 62 per cent of the total inward US FDI stock. 11 Investors from the US hold a total of 1.9 trillion USD of FDI stock in EU Member States which represents around 38 per cent of the total inward FDI stock in the EU.

That is, even without ISDS in place between the US and most of the EU (the US currently has agreements including ISDS with Bulgaria, Croatia, the Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania and Slovakia), the total transatlantic investment is 3.5 trillion euros - much more than when I last looked, which suggests that it is continuing to rise rapidly.  This demonstrates beyond any doubt that ISDS is simply unnecessary for the EU and US: investment is already flourishing on an unprecedented scale.

Bringing in ISDS would therefore have no benefit for Europe - but plenty of dangers.  An important post by Ante Wessels over on the FFII site explores one aspect I hadn't seen before: the fact that the ISDS system is inherently biased in favour of the US:

Investor-to-state dispute settlement (ISDS), the most controversial element of the proposed trade agreement with the US, has characteristics of a rigged system. ISDS gives the US an unfair advantage, we can not expect EU companies to win ISDS cases against the US.

Here's why:

The appointment of arbitrators is not neutral. One arbitrator is appointed by each of the disputing parties. In which supreme court can parties bring their own judge? The third arbitrator, the presiding arbitrator, is appointed by agreement of the disputing parties.

The US appoints the president of the World Bank. This president

- is ex officio chairman of the International Centre for Settlement of Investment Disputes (ICSID) Administrative Council,
- proposes the ICSID secretary-general,
- appoints all three the arbitrators in appeal cases under ICSID rules.

The secretary-general of ICSID

- appoints the third arbitrator if the parties can not agree on the third one,
- will decide over conflicts of interest. (ICSID, articles 5, 10, 38, 52 and Commission, 2014b, Table 8, article x-25.10)

The ISDS system gives the US an unfair advantage. Adjudicative processes have to be free of reasonably perceived bias. This is not the case with ISDS.

The rest of the post provides compelling evidence that this bias is already visible in the results of previous years' ISDS cases, where the US always seems to win.  

Against that worrying background, it becomes even more vital to respond to the European Commission's consultation on ISDS.  The deadline for replying is July 6, and I'll be writing an update detailing my own response soon.  In the meantime, here's what other people think about ISDS and are planning to send to the Commission - you may find them useful in framing your own.

First, a splendidly robust response from the Trade Union Congress, which states quite bluntly:

The TUC's response to this consultation will not follow the specific questions outlined, as they present ways to improve ISDS and investment protection measures in TTIP. The TUC, like the ETUC and AFL-CIO, opposes any form of ISDS in TTIP.  Our response, therefore, will detail why ISDS is unnecessary in trade agreements and poses a serious threat to public services and states’ ability to legislate in line with citizens' interest and wishes.

After that wonderful start, it goes on to offer cogent reasons why ISDS is simply superfluous, like this one: 

The fact that the UK has not been sued through an ISDS procedure in the past is also not a credible argument for its inclusion in TTIP.  This merely shows that the British governments have refrained from signing investment treaties with large capital-exporting states. It can be seen that when Canada, another country not previously subject to ISDS proceedings, signed the North American Free Trade Agreement (NAFTA) with USA and Mexico, they found themselves the subject of several ISDS cases, several of which were successful.  Canadian companies also used ISDS to sue the US government successfully through ISDS provisions in NAFTA.

It also explains why ISDS is "inequitable and undemocratic:

Inequality lies at the very foundation of ISDS as it privileges foreign investors over any other economic actors - domestic investors or interest groups such as consumers or workers – by giving them the right to access special courts for pursuing claims of expropriation.

It notes that ISDS is a particular danger for the UK:

In the UK, there is a danger that if a future government were to bring parts of the National Health Service back into public ownership by overturning the Health and Social Care Act (2012), it would be prone to challenge through ISDS by American companies that have significant investment in the NHS.  In addition, ISDS mechanisms could be used by US companies to litigate against tighter regulation of the UK’s growing for-profit education sector.

It's really well-worth reading the rest of the TUC response, which is in a similar vein.  It's great to see, not least because it shows that trade union organisations have woken up to the very real threat that ISDS represents for their members.

Next, an equally fine response to the unnecessary and frankly rather dishonest EU ISDS consultation, this time from the Trade Justice Movement (TJM).  You can read the detailed, ten-page question-by-question response [.doc] - indeed, I urge you to do so, if you can - but here's TJM's summary of its main points:

Approximately 70% of global investment happens without this kind of [ISDS] investment protection.

There is no valid reason to transfer business risk to communities by making governments liable. Transferring the risk to governments causes 'policy chill' whereby governments resist passing policies in case they get sued. For example: governments thinking of introducing plain packaging to cigarettes are watching the Philip Morris cases against Uruguay and Australia carefully: the company is arguing that the legislation is a breach of their intellectual property rights, the countries could face million-dollar compensation bills.

There is no reason to give international investors greater rights than domestic investors: both kinds of investors can access domestic courts, only international investors can access the private tribunals associated with ISDS.

Businesses should protect against risk via insurance: a scheme already exists via the World Bank. This could be supported by mediation and state-to-state diplomacy where necessary.

Finally, I need to point people to a new site that has been set up with the rather self-explanatory name "No 2 ISDS", which explains its purpose as follows:

The arguments against investor-state dispute settlement have been known for many years. Despite this, the European Commission has attempted to silently push it through in its ongoing trade negotiations with the US. It was only after sustained and substantial protests by citizens, trade unions and civil society groups that the European Commission launched a public consultation on the mechanism. However, this consultation - that was initially sold by the European Commission to the public as a way to involve citizens, trade unions and civil society - turns out to be a mere caricature.

First of all, the consultation does not ask the public whether they want investor-state dispute settlement or not in TTIP. Furthermore, ordinary citizens are overwhelmed with a highly technical and lengthy questionnaire. To make matters worse, the public are forced to exclusively stick to this electronic questionnaire that is not very user-friendly. Letters or E-Mails are not permitted. This contradicts the very essence of public consultations and makes it highly problematic from a democratic point of view.

For all of these reasons, AK EUROPA (the Brussels office of the Austrian Federal Chamber of Labour), the ÖGB Europabüro (the Brussels office of the Austrian Trade Union Federation), and Friends of the Earth Europe (the largest European environmental grassroots network), wish to offer guidance to anyone who would like to speak out against investor-state arbitration and secretive, opaque trade negotiations taking place behind closed doors.

We believe that special privileges for investors should be excluded from TTIP. We therefore also reject the Commission’s proposal to ‘improve’ the currently foreseen investor-state dispute settlement system. The only viable solution is: NO INVESTOR-STATE DISPUTE SETTLEMENT AT ALL!

It is of fundamental importance that we send a clear and strong message to the European Commission. Take part in the consultation and help us push back unjustified privileges for private investors at the expense of people and societies as a whole!

They're right, of course, and the good news is that this site (also available in French and German) helps people do that.  It does so by running through the questions found on the Commission's ISDS consultation, explaining in very clear terms what the issues are, and offering sample answers to those questions.

Once you've had a glance at these, you can then provide your own answers for the EU's online form, or wait a little longer for my comments too.  Either way, it is really important that as many people as possible reply to this consultation so that the European Commission cannot claim that nobody really cares about ISDS, and that it can therefore negotiate as it wishes.  This is an important opportunity to make our voices heard: let's take it.

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TTIP Update XXIX

In my last update, I introduced the secretive Trade In Services Agreement (TISA), currently being negotiated in parallel with both TTIP and sibling the Trans-Pacific Partnership agreement.  With rather nice timing, WikiLeaks has just released one of the key chapters from TISA, concerning financial services.  Since the text itself is pretty dry, WikiLeaks has asked one of the world's top experts on these trade agreements, Professor Jane Kelsey of the Faculty of Law, University of Auckland, New Zealand, to provide a detailed guide to what it all means.  I strongly recommend reading her analysis, since it really explains what all those innocuous-sounding phrases really mean.  Here is her summary of what the new leak tells us:

The secrecy of negotiating documents exceeds even the Trans-Pacific Partnership Agreement (TPPA) and runs counter to moves in the WTO towards greater openness.

The TISA is being promoted by the same governments that installed the failed model of financial (de)regulation in the WTO and which has been blamed for helping to fuel the Global Financial Crisis (GFC).

The same states shut down moves by other WTO Members to critically debate these rules following the GFC with a view to reform.

They want to expand and deepen the existing regime through TISA, bypassing the stalled Doha round at the WTO and creating a new template for future free trade agreements and ultimately for the WTO.

TISA is designed for and in close consultation with the global finance industry, whose greed and recklessness has been blamed for successive crises and who continue to capture rulemaking in global institutions.

A sample of provisions from this leaked text show that governments signing on to TISA will: be expected to lock in and extend their current levels of financial deregulation and liberalisation; lose the right to require data to be held onshore; face pressure to authorise potentially toxic insurance products; and risk a legal challenge if they adopt measures to prevent or respond to another crisis.

Although financial services are not currently part of TTIP, largely because the US government is unwilling to water down its standards, expect something very similar to the leaked TISA chapter to turn up in TTIP once the haggling begins.

Although not exactly a leak, because obtained through the US Freedom of Information Act, the publication of a letter from the US Chief Negotiator Dan Mullaney to EU Chief Negotiator Ignacio Garcia-Bercero is rather ironic, since it contains details of the efforts that the US will be making to keep TTIP as secret as possible.  It's in reply to a letter from the EU to the US outlining the measures in place there - although unfortunately we don't have this. 

The letter is easily summarised: the only people who will be granted access to TTIP documents are US government officials and "persons outside the US government who participate in its internal consultation process and who have a need to review or be advised of the information in these documents" - industry lobbyists, in other words.  No surprise there, given the US government's refusal to allow any relaxation of secrecy by the European Commission.  But the following section is something we didn't know before:

The United States will hold the TTIP documents in confidence for five years after entry into force of the TTIP Agreement, or if no agreement enters into force, for five years after the last round of negotiations.

So not only is the US doing everything in its power to stop the public seeing the negotiating documents while TTIP is being discussed, but it aims to keep them under lock and key for another five years after TTIP is agreed - or fails.  That really shows an extraordinary contempt for the US people who are not even allowed to see what their officials are doing for many years after its too late to do anything about it anyway.

Finally, a quick note about what the pro-TTIP camp have been up to recently.  Things aren't going to well for them, of course: resistance throughout Europe is growing by the day, as more people - and media - wake up to the deep problems of TTIP, not least ISDS.  Because of this pushback, momentum has been lost, and the negotiations aren't moving forward as fast as had been expected at the beginning.  In an attempt to get things going again, the Business Europe organisation has put together a Q&A page on TTIP.  Sadly, it contains the same old misleading claims, like this one:

For the EU, independent studies point out to an additional GDP growth of 0.5%, translating into EUR 120 billions annually. This compares to a GDP growth of 0.1% in the EU-28 and of 0.4% in the Eurozone in 2013.

Except, of course, as readers of this blog will know, that is comparing two completely different kinds of growth: the predicted cumulative extra GDP growth after *ten years* of TTIP (0.5%), with the *annual* growth in the EU-28 (0.1%).  A more honest way of putting that would be that the most optimistic forecast from the European Commission's research is that at best TTIP would add on average just 0.05% extra GDP growth per year.  The fact that Business Europe has to resort to this kind of obfuscation shows how weak the case for TTIP really is.

More interesting is a recent speech from Anthony L. Gardner, the US Ambassador to the European Union.  Here's the problem he's noticed:

Despite the benefits that would flow from a deal, the media coverage – especially in social media in certain EU member states – has started to turn negative.

Well, maybe the real problem is that there are *no* overall economic benefits, as the European Commission's own econometric models definitively prove.  But choosing to ignore that rather important fact, here's what Gardner says needs to be done:

I think our strategy has to change: I intend to take the debate to the critics, rather than accept speaking engagements only from the usual business federations where we preach to the converted. I intend to meet with representatives of civil society that have an open mind – including from labor, environmental and consumer groups; and I intend to focus in particular on rallying small and medium sized businesses because they struggle to spend the resources to deal with the bureaucratic red tape that we hope to reduce.

And here's how he intends to do that:

I believe this public diplomacy has to be centered on stories, not statistics: simple language that ordinary people can understand.

That's a wonderful admission that the facts about TTIP simply don't stand up to scrutiny, as I've shown in multiple previous updates.  Instead, what Gardner will offer is "stories", and "simple language that ordinary people can understand".  Isn't that consideration for the public's sadly-limited ability to understand complicated things like numbers just touching?  Thank you Mr Ambassador, you're a gent....

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TTIP Update XXVIII

The big news this week is an important leak detailing what the European Commission will offer the US in the fields of services and investments.  It's super fresh: the document is currently being circulated to the governments of the EU's Member States, and comments remain open until 30 June, so we are gaining important insights into real-time discussions that have hitherto been completely hidden from us. 

That makes this leak doubly important: not just for its content, but for the fact that it took place at all.  It shows that despite the European Commission's attempt to keep key negotiating documents out of the public debate, the Brave New World of leaking whistleblowers means that we will get to see some of them anyway.  The only difference is that the Commission looks arrogant and high-handed by refusing to release them officially.

The leak takes the form of three PDF files [.< ahref="https://data.awp.is/filtrala/2014/06/13/4.html">pdf

] - unfortunately they are scans, not searchable documents.  They were leaked to the European Federation of Public Service Unions, which apparently represents some 265 unions and 8 million public service workers.  Here's what it has to say about the content:

There is no general exclusion of public services and waste water services are committed for market opening. "Such an EU liberalisation agenda should be publicly debated at national and EU level, including the guarantees and rights that would accompany this agenda. Any discussion on water and sanitation services should include the realisation of the UN human right for water and sanitation in legislation, as demanded by the first successful European Citizens’ Initiative Right2Water and in which 1.9 million Europeans said no to inclusion of water and sanitation services in trade agreements. It is not clear if the national parliaments have agreed. The EP has not agreed the offers which apparently are also discussed with Canada and with other OECD countries (TISA)".

As that points out, services like water and sanitation are not excluded, and that's deeply problematic given the growing recognition that it makes no sense to privatise these natural monopolies.  That's because such critical monopolies allow companies to charge pretty much any price they like, since (a) we can't do without their services (b) we can't go simply turn to some rival provider.  That's led to a number of moves to put water services back into public hands, running them as the commons they obviously are.  The refusal of TAFTA/TTIP to recognise this issue is another reason why it is a poor fit for the realities of 21st-century European life.

The other important point to note from the comment quoted above is the mention of a mysterious TISA.  To my shame, I only heard about this about a month ago, and yet it has been around for a year.  The reason for the discrepancy is that TISA - which stands for "Trade in Services Agreement" - is yet another set of secret negotiations that are being conducted in our name, but about which we are not allowed to know anything important.

It turns out that TISA forms a kind of unholy trinity together with TTIP and the Trans-Pacific Partnership agreement (TPP).  Between the three of them, they aim to define the terms for world trade for the coming years: TTIP covers transatlantic trade and investment, TPP the transpacific trade, and TISA global trade in services.  TISA involves pretty much all the countries of TPP plus the European Union.  What TTIP, TPP and TISA have in common is the US, which seeks to use these three treaties to cement its position as they key player in trade and services.  The idea is obviously to set the terms for those before China takes over as the world's biggest economy.

If you're interested in finding out more about TISA - and you definitely should be - I've put together what little we know about in a post over on Techdirt.  The newly-leaked documents are important not least for the following statement:

As far as services are concerned, the attached draft offer mirrors the offer submitted by the EU in TiSA negotiations in November 2013 both in terms of format and substance

That confirms the extremely close relationship between TTIP and TISA, to the extent that TISA is pretty much being mirrored in TTIP.  Although we don't know much about TISA, and the levels of secrecy surrounding it are even greater than for TTIP, I expect that to change as more people wake up to what is going on, and whistleblowers start coming forward here too.

I'd like to finish this update with a couple of separate developments, which though small in themselves, give a sense of the growing problems for TTIP.  First, in France, where the French bank BNP is accused by the US authorities of breaking sanctions against Iran, Sudan and Cuba, and therefore liable to a huge fine - £6 billion is being mentioned.  Here's the TTIP angle:

Michel Barnier, the EU's internal markets commissioner, said any penalty on the giant French bank must be "fair and objective".

There are reports that the US may hit BNP with a fine of $10bn (£6bn) for allegedly violating sanctions rules.

France has expressed alarm at the fine, warning that it could hurt trade talks.

That makes sense, because the benefit that France will obtain each year from TTIP is likely to be far smaller than £6 billion, even under the most optimistic forecasts.  That means that fighting this fine is a far better use of its politicians' time than bothering with a trade agreement that may or may not bring any long-term benefits.

The other TTIP story comes from Germany, where the US Embassy in Berlin tweeted about a revealing little project it is running.  The original tweet is in German, and roughly translated reads thus:

Are you for #TTIP and annoyed over the negative coverage? Send us your idea and we will support you.

Here's the kind of idea and support the US Embassy has in mind:

The U.S. Mission to Germany Public Affairs Section (PAS) is soliciting proposals from not-for-profit, non-governmental organizations, think tanks, and academic institutions that focus on the Transatlantic Trade and Investment Partnership (T-TIP).  The goal is to keep our publics informed about the negotiations and offer meaningful opportunities to shape the respective negotiating objectives.

What are the facts behind T-TIP, and how will it impact you? What are some of the concerns in the European Union and the United States?  What are some of the benefits? What impact will T-TIP have everyday life?  Facts and figures are needed, and we look forward to working with partner institutions to develop a final product which informs about the agreement and which combats misinformation.

The activities funded with a Federal Assistance Award (Grant) ranging from $5000 to $20,000

Given its tweet calling for those "annoyed over the negative coverage" to get in touch, and the requirement that the "final product...combats misinformation," I don't somehow think the US Embassy will be funding anyone with serious doubts about TTIP.  In other words, this is a desperate attempt to buy some "independent" support for a treaty that nobody is willing to support because they genuinely believe in it.

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TTIP Update XXVII

It is nearly a year since the TTIP negotiations were launched, and yet things still feel strangely preliminary.  Partly that's because everything is taking place behind closed doors, so the public is not actually kept fully up to date with what is going on.  Partly, too, that's because things have gone rather more slowly than people probably expected when the talks were started.  Indeed, some institutions are still coming to grips with the whole business - like the House of Lords, one of whose sub-committees has just published a major report on TTIP. 

It's decent enough as a background document, although I don't think that anyone who has been reading these updates will learn much that is new.  Instead, they will recognise many of what have already become rather tired TTIP tropes:

The Transatlantic Trade and Investment Partnership (TTIP) is the most ambitious trade and investment pact ever attempted, due both to its scale—the European Union and the United States together account for nearly half of world GDP—and because in tackling non-tariff barriers to trade, a deal could set the template for a new generation of 21st century trade and investment agreements.

The report also quotes the by-now standard figures:

In their written evidence, the UK Government pointed to the CEPR studies commissioned by the Department for Business, Innovation and Skills (BIS) and the European Commission to suggest that an ambitious, comprehensive TTIP deal could over the long-term be worth up to £10bn (or 0.35 per cent of GDP) annually to the UK, up to £100bn (or 0.5 per cent of GDP) annually to the EU, and up to £80bn (or 0.4 per cent of GDP) annually to the US.[28] The GDP gains would be relative to projected GDP levels without TTIP in place.

However, to its credit, the report also notes some critical voices:

28.  The AFL-CIO [American Federation of Labor and Congress of Industrial Organizations] expressed sympathy with the views of Dean Baker, of the Center for Economic and Policy Research, who had noted that the projected GDP increases in the study produced for the European Commission would not materialise in full until 2027, and that they reflected a best-case scenario. In a less ambitious, and "presumably more realistic" scenario, the GDP gain for the US by 2027 would be "roughly equal to a normal month's growth" and thus in Mr Baker's view, "too small to notice".

29.  Professor Baldwin advised us to treat the figures with caution for a different reason, pointing out that figures were projected against a "status quo" world, and that experience—for example with predictions on the effect of the North American Free Trade Agreement (NAFTA)—had shown that the status quo world "was nothing like what actually happened, because a thousand things happened". It was consequently "very difficult" to sort out what NAFTA did, and it might in future be similarly difficult to disentangle the effects of a TTIP agreement from other factors. He nonetheless judged that the numbers "will be realistic, but over a medium run."

30.  With regard to income gains for consumers, Professor Baldwin told us that it was "basically impossible to say how much this will add to people's income" and suggested that we "take with a large grain of salt any particular numbers on the overall numbers".

In its summary, the House of Lords report contains the rather striking comment:

We observe that, insofar as a public debate on TTIP exists, EU member states are losing it. Proponents have yet to articulate the purpose or possible gains from TTIP in a compelling way, or to offer convincing responses to legitimate concerns.

All-in-all, the House of Lords report is a thorough piece of work that shows good awareness of what is going on.  Alas, the same cannot be said for a TTIP debate in the House of Commons, which took place a few months back, but which has only been published recently.  Again, the usual misleading figures are trotted out, but this time without the balancing caveats provided by the House of Lords.  However, one novelty did catch my eye - the fact that Which? was invoked twice by MPs:

Given that the European Union and the United States account for 40% of global economic output and that their bilateral economic relationship is already the world’s largest, the opportunities are clear for all to see. Between them, they contain more than 800 million consumers, and the TTIP has significant potential for them as well. It is clear from the helpful briefing sent to all Members by Which? that there will be big prizes for them if we can get this right.

And:

let us remember that trade deals do benefit consumers, which is why consumer groups such as Which? are in favour of this trade deal.

Given this invocation of Which? to sanctify TTIP, I was naturally intrigued to know why it was in favour.  I contacted Which?, and asked to see the briefing document mentioned in the first extract above.  Which? pointed me to a blog post by Peter Vicary-Smith, the organisation's Group Chief Executive, published in the UK edition of the Huffington Post.  Sadly, Mr Vicary-Smith has no compelling reasons for supporting TTIP, just the familiar old exaggerations:

It has been estimated that reaching an agreement could boost the EU economy, through growth and job creation, by £99 billion per year - that's £475 per household, hardly an amount to be sniffed at!

But of course, we should sniff at it, because it doesn't pass the smell test, as BEUC, the European consumer organisation, makes plain in a letter addressed to Karel De Gucht, the Commissoner responsible for the TTIP negotiations [.pdf]:

The possible effects of the Transatlantic Trade and Investment Partnership (TTIP) currently u nder negotiation are an important matter for public debate. It is essential that the expected cons equences of an agreement are communicated clearly and in easily understandable language to Europe’s citizens to enable and encourage this debate. People need to be well informed about the range of possible outcomes.

Our belief in the importance of clear communication of the cons equences of a TTIP seems to be shared by the European Commission. Official statements by the Commission have repeatedly stressed the need for a fact - based dialogue. In January 2014 you said yourself that the debate on TTIP should be “based on facts, not f ear or hyperbole.” Unfortunately, we have noticed that the European Commission has not communicated the r esults of its own economic assessment clearly. We would like to draw your attention to the follo wing examples of imprecise communication by the Comm ission.

It then goes on to raise four specific problems:

Exaggeration of the effects of the TTIP : Instead of communicating the full range of results that the Centre for European Policy Research (CEPR) study on the economic impacts of a possible TTIP delivered, the European Commission has almost exclusively used the e stimates for the highest scenario, without mentioning the other scenarios also included in the study.

...

Lacking information on the time scale :  In many instances, the European Commission makes no reference to the time that it would take for the full effects (of the best case sc enario) to be felt. It has even been suggested that these effects could materialise by the end of the negotiations, for example: “When negotiations are completed, this EU - US agreement would be the bigg est bilateral trade deal ever negotiated – and it could add around 0.5% to the EU's annual economic output,” rather than in 2027 as predicted by CEPR.

...

Use of unsubstantiated figures regarding the job creation potential: The study which has looked most thoroughly at e mployment effects expects only 400,000 jobs across Europe for the extremely ambitious single market scenario that goes beyond anything evaluate d in the CEPR study. Yet, you stated in a speech in October 2013 that an agreement “would likely translate into millions  of new jobs for our workers.”

...

Use of obfuscating language : In many publications the Commission has use d language that is very difficult to understand for lay persons and can easily create misunderstan dings. For example, the sentence: “Latest estimates show that a comprehensive and amb itious agreement between the EU and the US could bring overall annual gai ns of 0.5% i ncrease in GDP for the EU and a 0.4% increase in GDP for the US by 2027” is ambiguous at best. It can easily be read as if the agreement could create a yearly increase in GDP of 0.5%. This misinterpretation has indeed occurred even among gover nment off icials and renowned think tanks. A balanced presentation of the results would point out that the annual additional growth expected from TTIP amounts to roughly 0.05% between 2017 and 2027, and that no additional growth is expected after that.

Although couched in the politest terms, this is a real slap-down for the Commissioner.  It exposes quite clearly how the European Commission has been playing fast and loose with its own research - not only failing to mention that it always talks about the best-case scenario, and that the full benefits will not be until 2027, but glossing over the fact that those benefits are *extremely* small - despite what all the TTIP cheerleaders would have us believe.

The House of Lords report discussed above mentioned a comment from the economist Dean Baker.  His latest blog post on the TTIP negotiations has the provocative title: "Why Is It So Acceptable to Lie to Promote Trade Deals?"  Here's what he has to say about predictions of the European Commission-funded study:

Implying that a deal that raises GDP by 0.4 or 0.5 percent 13 years out means "job-creating opportunities for workers on both continents" is just dishonest. The increment to annual growth is on the order of 0.03 percentage points. Good luck finding that in the data.

In addition, there are reasons to believe the growth effect could go in the opposite direction. The model used by the London CEPR does not assume any negative growth impact from higher prices for drugs or other goods that might be more costly due to stronger patent and copyright protections coming out of the deal.

These will likely be a drag on growth. Economists tend to like patents and copyrights (probably because their friends and family members benefit from them), but that doesn't change the fact that they lead to market distortions and have major economic costs. If the price of a drug rises by 1000 percent because we imposed stronger or longer patent protection it has the same effect in the market as if we imposed a 1000 percent tariff on the drug.

In fact, the situation is even worse than that analysis implies.  All these claims are based on just two pieces of research, both carried out for the European Commission.  At the heart of them lies an econometric modelling technique called Computable General Equilibrium (CGE).  An important paper from a pair of economists has this to say about the approach in general, and its application here in particular [.pdf]:

Our central argument in this paper, drawing on the insights from the economic sociologist Jens Beckert, is that these CGE models – and the figures they have produced – represent an important exercising in the ‘manageme nt of fictional expectations’. Beckert’s notion of ‘fictional expectations’ implies that although these models are shrouded in uncertainty, as the social world is too contingent to be modeled in terms of the assumptions of neoclassical economics, they are presented as reliable predictions of future outcomes. In this vein, we show how the models make overly optimistic predictions about the ability of the EU and US to eliminate regulatory barriers to trade – which are unlikely to be realized in the face of co nsiderable political opposition. Rather than act as a reliable guide to future outcomes, we show that these models serve the pro - liberalisation agenda of the European Commission and other advocates of the TTIP. These actors are engaged in an exercise of ‘m anaging’ these fictional expectations by presenting them as incontrovertible evidence in favour of the agreement. Moreover, by glossing over the differences in impact that different forms of liberalization will have – a mutual recognition of standards is m ore likely to lead to a potential ‘downgrading’ of standards across the Atlantic than regulatory harmonization – and focusing simply on the gains of ill - defined regulatory ‘liberalisation’, the economic studies have been used to privilege the interests of t hose calling for market access gains over those concerned with a stricter regulation of the market .

In other words, not only does the European Commission use the figures from this research in a highly misleading way, as BEUC's letter spells out in detail, but those figures are not so much an objective prediction of what *will* happen, but a re-statement of what the European Commission would *like* to happen, re-fashioned as an economic model.  This means that there is simply no basis for the repeated assertions by supporters on both sides of the Atlantic that TAFTA/TTIP represents a "once-in-a-generation prize".  One year in to the negotiations, we still have no evidence whatsoever that TTIP will produce any real benefits for either the EU or US.

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TTIP Update XXVI

This is probably the most action-packed update so far, and is a reflection that we are now deep in the TAFTA/TTIP negotiations.  Of course, information about what exactly is happening behind the closed doors is still thin on the ground.  To its credit, the European Commission has recently published its negotiating positions in five areas: chemicals , cosmetics , pharmaceutical products , motor vehicles , textiles and clothing.  Significantly, though, it did not publish its proposals for energy.  That's because they are far more contentious than for those other areas.  How do we know that?  Thanks to some kind person who has leaked a draft negotiating text for that area [.pdf].  Here's how the Sierra Club and PowerShift describe the Commission's moves (they also offer a fuller analysis [.pdf]:

If enacted, the proposal would:

expand fossil fuel exports from the U.S. to the EU,

increase the EU’s reliance on fossil fuel imports,

limit the ability of governments to set the terms of their energy policy, and

restrict the development of local renewable energy programs.

“This proposal exposes the contradiction of policy makers who promise to do everything they can to act on climate and then push a trade and investment agreements that would devastate our climate,” said Peter Fuchs, Executive Director of PowerShift. “Europe should phase out the use of its own fossil fuels -- and it should not be importing fracked gas or any other fossil fuel from the U.S. This proposal is more evidence as to why trade negotiators are holding the details about this deal so close to the vest.”

In part because of the lack of real transparency - for example making all the EU's tabled documents publicly available - some people last week demonstrated peacefully outside a meeting at which both Karel De Gucht, the EU commissioner responsible for TTIP, and the US Ambassador to the EU, Anthony Gardner, were speaking.  Here's what happened:

This Thursday morning over a thousand people were in the streets of Brussels, attempting to peacefully protest against austerity and the proposed great transatlantic market (TTIP) which were being discussed in the absence of citizens at the European Business Summit.

In an unprovoked move 281 people were violently arrested, including Belgian and European parliamentarians and candidates, senior trade union officials, farmers and many elderly citizens.

And this was no genteel response to a genteel demonstration: water cannons were used, and many of those arrested were cable-tied with their hands behind their back.  That's an extraordinarily disproportionate response to a peaceful demonstration, and reveals the extreme nervousness of the authorities. However, it seems likely to backfire: it was precisely this kind of attempt to tough it out that led to the fall of ACTA in 2012.

Street protests by concerned citizens may be only just beginning, but civil organisations are increasingly waking up to the dangers of TTIP and sending warning messages in ever-larger numbers.  Here's one from over 250 groups calling for greater transparency:

"The European Commission has argued that secrecy in this process is inevitable because this is a matter of international relations. However, as these negotiations are highly likely to affect domestic regulations, standards and safeguards on both sides of the Atlantic, citizens have the right to know what is being put up for negotiation, and how decisions are being made.

All negotiating documents must be made public so that a democratic debate can take place. People – not just corporations – must be able to take part in discussions about what kind of economy, environment and future we want. Continued secrecy will only fuel suspicions that the negotiations are trading away citizens' protections for the benefits of powerful industry players."

That's a key point: by its own admission, most of TTIP's possible gains will come in the regulatory sphere; regulations are about want kind of society we want to live - what the rules are.  Changing those behind closed doors is simply subverting basic democratic principles.

Another letter, again from many dozens of organisations, also concerns itself with the regulatory sphere - specifically the possibility that some kind of transatlantic regulatory council will be set up, as discussed in a previous update.  Here's the concern [.pdf]:

The top-down coordination of these measures through an institutional framework for transatlantic regulatory cooperation, we feel, would likely become a significant source of delay and preempt a state, a country, or region’s ability to maintain or establish stronger standards when consumers demand such or to respond to emerging technologies, new scientific information, preferred policies by the public, and urgent crises. One of our main concerns is that regulatory cooperation as suggested by trade negotiators will allow business groups and their lobbyists to exert undue influence in the regulatory process.

With an objective to prevent transatlantic regulatory divergence and minimize impacts to international trade, the preemptive power and influence of this institutional framework for regulatory cooperation is of particular concern.

As proposed, this body is designed to prioritize potential trade impacts over other factors in decision making. Even without a focus on trade-related impacts, cost-benefit analysis can produce unreliable results and may be heavily tilted against the public interest. Proposals to add yet more layers of analysis and governance to the rulemaking process will increase delays and will impede achieving the central mission of most regulators: to protect the public and the environment.

Of course, there's a deep irony here.  One of the declared aims of TTIP is to reduce "trade frictions", so as to boost economies on both sides of the Atlantic.  And yet, as the quoted passage above rightly points out, the regulatory council would "add yet more layers of analysis and governance to the rulemaking process will increase delays" - adding "friction".  That's simply because TTIP is about making things easier for big business, and one way of doing that is to reduce the flow of new health and safety regulations, even though the public would suffer as a result.

The proposed regulatory council is about future convergence; but another suggestion is that "non-tariff barriers" - things like health and safety rules - could be eliminated through the process of mutual recognition.  The argument here is that since no rules would be abolished, there would be no race to the bottom.  To see why that is simply not true, it's helpful to consider the specific case of chemicals:

It might come as a shock to EU voters to learn exactly how weak US laws are when it comes to toxic chemicals, especially when the US’s chief negotiator for the Trans-Atlantic Trade and Investment Partnership (TTIP) has been claiming otherwise.  This unprecedented “trade” agreement is primarily about regulation, and threatens to create new and additional avenues for industry and government to use their influence to stall necessary action on toxic chemicals, climate change, and other critical issues that must be addressed by the EU and global community to protect human health and the environment.

How weak are US laws for toxic chemicals?  Only eleven ingredients are restricted from cosmetics in the US, versus over 1300 in the EU.  Under a law dating back to 1976, US regulators have only been able to restrict the use of merely five of over 60,000 industrial chemicals that were presumed safe when the law was adopted, including asbestos.  Under this law, and despite over a century of substantial evidence of serious adverse effects, US regulators were unable demonstrate sufficient “risk” to justify a ban on the use of asbestos, unlike EU counterparts.  Moving ahead of the US, the EU has started to implement legislation that has the potential to systematically substitute over 1000 toxic chemicals—including those linked to cancer, interference with hormone systems, reproductive harms, and other serious adverse health effects—with safer alternatives in a wide range of everyday products.  The US has no such law.

Mutual recognition of standards for cosmetics would allow some 1289 chemicals banned in Europe as toxic to be used quite legally in US-produced items.  It's easy to see that this would encourage manufacturers to move to the US where they could produce cosmetics subject to less stringent standards, and then sell them to Europe from there.

The text quoted above comes from an article on the EurActiv site, written by Baskut Tuncak, Chemicals Programme Attorney for the Center for International Environmental Law (CIEL).  That same organisation was asked by the US House subcommittee on Commerce, Manufacturing and Trade to provide answers to a variety of questions on TTIP regarding regulatory cooperation, investor-state disputes, confidential business info, and transparency.  The responses may not be for the general audience, but that offer a useful perspective on TTIP and ISDS from a US perspective.  Here, for example, is what CIEL has to say in response to a question on regulatory harmonisation and mutual recognition [.pdf]:

Whether regulatory harmonization or the mutual recognition of standards would diminish the regulatory sovereignty of the United States and the European Union, i.e., constrain the ability of the two entities to promulgate regulations it deems uniquely appropriate for the specific threats to the health and safety of their respective citizens.

Yes, regulatory harmonization or the mutual recognition of standards would diminish the regulatory sovereignty of both the United States and the European Union, both at the highest levels of government and, critically, at the subnational and subregional levels where regulatory innovations most often originate. Negotiators have stated that TTIP would not affect the right of the U.S. and the EU to regulate; however, TTIP would affect the ability of these Parties, including states and Member States, to exercise this right.

The proposed institutional framework for regulatory cooperation would be composed of representatives from both Parties, and cover “any planned and existing regulatory measures of general application” and “extend to regulations by US States and EU Member States.” It would have the unstated power to constrain the ability of the either Party to exercise its right to promulgate regulations it deems uniquely appropriate for the specific threats to the health and safety of their respective citizens. Some of the key elements of this implicit power include:

The use of “harmonization, recognition of equivalence, or mutual recognition” as tools for regulatory "cooperation"...;

The use of “cost-benefit” and “trade impact” analyses for proposed regulatory or legislative initiatives, with a special focus on international trade impacts, to be published with the proposed final measure;

A requirement for “regulatory dialogues,” with trans-Atlantic governments;

The creation of a trans-Atlantic scientific body to guide regulatory decision making ; and

The right of “stakeholders” to table “substantive joint submissions” for this body to consider.

These types of provisions are designed to weaken or delay the development and implementation laws that specifically address priorities of either U.S. or EU citizens that might not be reflected across the Atlantic. For example, the recent decision to abandon the EU’s Fuel Quality Directive, which sought to curb the use of dirty energy sources and encourage renewable, was abandoned due to U.S. government and industry interference over the potential trade-related impacts. An institutional framework would create a permanent avenue for foreign interference with the development and implementation of laws and policies sought by the public in the U.S. or EU to reflect their own values, judgments, circumstances and policy choices.

Although not exactly light reading, it's an impressive document with links to many useful sources.   It's a sign of the increasingly detailed and sophisticated response that organisations like CIEL are putting together as they gird their loins in the by-now intense battle over TTIP.

Full list of previous TTIP Updates.

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TTIP Update XXV

On Monday, a couple of things happened in the world of TTIP - both, as it happens, in Berlin.  More importantly, the main TTIP circus flew into town: that means not just Karel De Gucht, the European Commissioner with responsibility on the European side, but also Michael Froman, the US Trade Representative (USTR), and thus the leader of the US negotiations.  The occasion was "The Transatlantic Trade and Investment Partnership Dialogue Forum", hosted by the German Finance Minister, Sigmar Gabriel, who also spoke alongside the two negotiators.

Gabriel was the most interesting speaker, not least because he was originally sceptical about TTIP - until he became Germany's Finance Minister, when he was presumably told to toe the government line.  In particular, what was really striking about his speech was his constant call for transparency: indeed, he went so far as to say that negotiatoins without transparency are simply not acceptable in a democracy.  That sounds great, but I doubt it will have much effect. When Froman was asked about providing more transparency, he basically said "no", without offering any credible justification for that stance.  Even De Gucht seemed to want more transparency, which shows that it is only the US side that is blocking things.

Overall, the event was pretty tedious.  Nothing dramatically new was said, and all the tired old platitudes - and FUD -  were trotted out.  What was most significant was that it took place at all.  As was admitted at the beginning of the event, the reason for the unprecedented wheeling out of the political heavyweights is that TTIP is in big trouble, and nowhere more so than Germany.  Just as Germany led the successful revolt against ACTA, so it is in the vanguard of resistance to TTIP.  The hope - albeit a rather desperate one - was that bringing on the main players, the German public would suddenly be won over.  I don't think so, somehow., and one of the indications that the politicians are wasting their time is that a petition against TTIP, organised by the German organisation Campact, has already garnered over 470,000 signatures at the time of writing.

This fact led to a very telling exchange at the conference.  De Gucht said to Campact's Maritta Strasser that *she* might have 500,000 signatures, but *he* represented 500 million Europeans, and that she had a long way to go before she could match his legitimacy.  Of course, it seems to have slipped his mind that nobody actually voted for him: he was just given his post as part of the weird European Union apportionment of power.   The idea that he "represents" the 500 million people who pay his salary, let alone that this legitimises his secret discussions on TTIP shows how contemptuous he is of ordinary citizens who want to follow what is going on and to give their input.

It explains precisely why the German people, among others, are so sceptical about the value of TTIP to them and their families, and is the primary reason why De Gucht and Froman had to be flown in to perform this desperate bit of firefighting to "save" the agreement before it is too late.  It also explains why that propaganda stunt failed completely: because the politicians pushing TTIP simply do not understand - or probably even care - what ordinary people think about the negotiations.

The other thing that happened in Berlin on Monday to do with TTIP - rather less important - was that I gave a talk on the subject at re:publica 14, arguably the best tech conference around at the moment.  I've embedded the talk here:



and my slides below.

Glyn Moody TAFTA/TTIP talk at re:publica 14 from glynmoody

Readers of this column won't find anything particularly new, but the presentation has the virtue of being relatively short (only about 20 minutes), and thus I hope it could be quite useful as an introduction for people who don't know much or anything about this important agreement.  It's followed by a longer panel discussion where various aspects are explored, including questions from the audience.

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TTIP Update XXIV

In an early update, I wrote about the leak of the European Commission's communication strategy for "overcoming public scepticism" about TAFTA/TTIP.  The key section was probably 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).

That clearly hasn't succeeded - we've seen increasing discussion and concern about how there could be a regulatory race to the bottom, and about the elevation of corporations to the same level as nations through the unbridled power of the investor-state dispute settlement (ISDS) mechanism.  The failure to control the narrative about the latter has led to the European Commission's consultation on ISDS - although, as I noted in my previous update, that's largely a PR exercise, and won't make any substantive difference to what the Commission and its negotiators will do.

However, in one respect, the Commission's communication strategy is going according to plan: the vast majority of reporting on TTIP accepts at face value not just the figures that are being bandied around for the supposed gains from TTIP, but the larger underlying assumption that there will in fact be gains at all.  Part of the problem is that there is strikingly little research into the benefits and costs of TTIP.  That's truly extraordinary: no one would think of setting up a business without investigating both exhaustively, by trying to forecast the outcome of various alternatives.  And yet the European Commission wants us to buy into the largest global trade agreement ever attempted with far less research or justification than most of us would need before even buying a second-hand car.

It is doing that by rolling out the same numbers every time it talks about the claimed benefits: those found in research which it paid for, from the Centre for Economic Policy Research (CEPR).  I've talked about these in earlier updates, and discussed why they are not at all what they seem - and certainly not the massive gains the European Commission keeps talking about.  But my view hardly carriers much weight against the economists that put it together.  What we need is another qualified team to look critically at the assumptions and results.  Fortunately for us, the Confederal Group of the European United Left/Nordic Green Left (GUE/NGL) has commissioned a group of researchers to do precisely that.

Now, it might be claimed that its report, "Assessing the Claimed Benefits of the Transatlantic Trade and Investment Partnership" [.pdf] inevitably brings with it an agenda.  But exactly the same is true of the research carried out on behalf of the Commission.  What's important is that we have a range of views on the economic impact of TTIP, and that we don't just assume one study is the last word on the matter - which is essentially where we are today.  What makes the new study, which has been put together by the Austrian Foundation for Development Research, particularly valuable is that it does not restrict itself to the main CEPR work, but looks at all the available studies, of which there are now four - still a frighteningly small number given what is at stake.  Here's the basic result:

All of the four scrutinized studies report small, but positive effects on GDP, trade flows and real wages in the EU. GDP and real wage increases are however estimated by most studies to range from 0.3 to 1.3 %, even in the most optimistic liberalization scenarios. These changes refer to a level change within 10 to 20 years (!), annual GDP growth during this transition period would thus amount to 0.03 to 0.13 % at most.

This confirms what I wrote in Update XXI: the possible benefits are really very small.  What's important to note here is that that this emerges from four separate analyses.  However, the new study GUE/NGL mentions another crucially important effect of TTIP - one that I've rather underestimated:

According to three studies, TTIP benefits will however come at the cost of reducing bilateral trade between EU Member States. In a deep liberalization scenario, intra-EU trade could fall by around 30 %. The reason for this is that these EU countries’ exports will be substituted for by cheaper Extra-EU imports.

This makes sense: as the barriers to selling in the US drop, so more EU trade will take place with it.  However, one of the collateral effects will be that EU countries sell less to each other, since they can presumably make more money sending their goods overseas.  This leads to a paradoxical effect:  a treaty that is partly being sold on the basis that it will strengthen the EU, will actually hollow it out, as intra-EU trade diminishes.  That means people who support TTIP because they believe it will re-inforce Europe will need to think again: TTIP might actually be the final blow that leads to the disintegration of the European Union, turning it into a looser economic grouping.

That's one important fact to emerge from this analysis; arguably even more important is the new work the Austrian team have carried out to address what is perhaps the biggest flaw in the European Commission's argument that TTIP will bring huge benefits - the fact that the corresponding costs are not calculated to allow an overall balance to be drawn.  Again, it is extraordinary that the Commission is asking people to support TAFTA without revealing the costs that are likely to be involved.  Here's one important category of them:

Adjustment costs are mostly neglected or downplayed in the TTIP studies. This refers in particular to macroeconomic adjustment costs, which can come in the form of (i) changes to the current account balance, (ii) losses to public revenues, and (iii) changes to the level of unemployment.

The first of these is unlikely to be major, but the other two could well be. After all, if tariff barriers are eliminated, there is bound to be some loss of government revenue:

We would thus estimate cumulated income losses to be in the order of €20 billion over a period of 10 years, also depending on tariff exemptions and phase-in periods for sensitive goods.

Three of the studies assume that there will be no permanent unemployment as a result of TTIP (quite a big assumption, given the current economic situation), while one predicts unemployment will be reduced.  But even in that case, there is likely to be worker displacement, as the effects of TTIP are felt differently in different industries.  This will lead to temporary unemployment, retraining, and probably downgrading of jobs.  All of these impose costs on the economy:

A rough calculation yields annual expenses for unemployment benefits of between €0.5 – €1.4 billion during a TTIP implementation period of 10 years. Thus a cumulative €5 – €14 billion might be necessary to finance a part of the adjustment costs on the labor market, with additional costs for re-training and skills-acquisition not included in this amount. To this amount, a further loss of public revenue from foregone tax income and social security contributions between €4 - €10 billion has to be added.

The final category of costs is perhaps the most important, because it exposes another massive assumption in the European Commission's figures:

Another type of costs ignored refers to the regulatory change resulting from TTIP. All studies, but particularly the Ecorys study, assume that a reduction of NTMs [non-tariff measures] is welfare-enhancing. This ignores that NTM such as laws, regulations and standards pursue public policy goals. They correct for market failures or safeguard collective preferences of a society. As such they are themselves welfare-enhancing. The elimination or alignment of an NTM thus will imply a social cost for society. This applies equally to NTM elimination, harmonization and mutual recognition.

This is something else I had not appreciated.  The removal of "non-tariff barriers/measures" is one of the most contentious areas of TTIP since those "barriers" are things like health and safety regulations.  The fact that their removal is being treated as "welfare-enhancing" - improving the lot of society - is a truly outrageous redefinition of both society and welfare.  It might well boost the bottom lines of companies that pollute the environment, say, but that can hardly been called "welfare enhancing".  Thus what are currently being counted as *benefits* are probably actually costs, as the Austrian economists go on to point out:

the elimination of NTMs will result in a potential welfare loss to society, in so far as this elimination threatens public policy goals (e.g. consumer safety, public health, environmental safety), which are not taken care of by some other measure or policy. The analysis of NTMs in the Ecorys study completely ignores these problems. Instead, it is assumed that around 50 % or 25% of all existing NTMs between the EU und the US are actionable, i.e. can be eliminated or aligned to some international standard, while CEPR assumes a 25% actionability level. This includes sensitive sectors such as foods & beverages, chemicals, pharmaceuticals and cosmetics or automotives. In order to arrive at its optimistic welfare estimations, strong reductions/alignments of NTMs in precisely those sectors are necessary, where the safeguarding of public policy goals is perhaps most crucial. It is highly doubtful that such high levels of actionability could be implemented without any losses to the quality of regulation in the public interest. Though subject to considerable uncertainty, the incurred social costs of TTIP regulatory change might be substantial, and require careful case-by-case analysis.

That's putting it mildly.

As I hope you can see, this is a really important contribution to the TTIP debate, since it not only examines existing studies, and subjects them to an extremely detailed analysis running to dozens of pages, but it also raises crucial issues that have so far been almost completely ignored.  Key among those are the costs of TTIP - which turn out to include aspects that somehow have been magically transformed into benefits, simply by ignoring their true impact on the public.

That's just one among many reasons to take a look at this work.  Although the technical critique of the impact assessment studies are hard going unless you are an economist, the report's authors have very thoughtfully provided not just one, but two summaries: a condensed one, and an extended version.  These do not require any technical econometric knowledge and should be read by anyone who wants to form a more balanced view on what the real benefits and costs of TTIP are likely to be.

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TTIP Update XXIII

In my last update, I noted that the problems with investor-state dispuate settlement (ISDS) are multiplying, as lawyers latch on to the fact that it is an extremely efficient way of extracting large sums of money for very little cost (for example, I mentioned one case where an investment of $5 million led to an award of $900 million for "lost profits".)  In fact, things are so bad even the European Commission has noticed.

That's partly because of the enormous pushback from people once they twigged what ISDS entails.  Until a few months ago, this was an extremely obscure aspect of an inherently dry and dull area, so it's no wonder that few people knew or cared about it.  But once they realised that it would have immense impact on their lives - both directly in terms of the huge pay-outs that *they* would have to fund through taxes, and indirectly in terms of the chilling effect on future legislation and regulation people started to make their concerns known.

The most dramatic manifestation of that upswell of outrage is that the European Commission unexpectedly announced that it would be holding a "consultation" on ISDS.  That was doubly significant.  It showed that the Commission was sensitive to public outcry, and it also created a precedent: if a consultation could be held on ISDS, why not on all the other aspects of TTIP?

However, a big question mark hung over the consultation - for example, some have seen it as a cynical ploy to remove ISDS from public discourse until *after* the imminent elections for the European Parliament, so that they are not an important theme there.  There is now a home page for the consultation and its associated documents, and it's well-worth examining them in order to gain insights into the Commission's thinking on this score.

The "Consultation notice" [.pdf] contains some interesting background:

Given the strong public interest in this issue the European Commission is consulting the public in the EU on a possible approach to investment protection and ISDS that contains a series of innovative elements outlined below and that the EU intends to use as the basis for t he TTIP negotiations. The key issue on which we are consulting is whether the EU’s proposed approach for TTIP achieves the right balance between protectin g investors and safeguarding the EU 's right and ability to regulate in the public interest .

That attempt to create a false "balance" between "protecting investors" and "safeguarding the EU 's right and ability to regulate in the public interest" is perhaps the clearest indication of why we do not need ISDS.  There should be no question of trading away the right to regulate in return for investor protection: they belong to entirely different policy universes.  Their complete independence is demonstrated clearly by some statistics on the European Commission's own site.  I make no apology for wheeling them out yet again because they drive a stake through the heart of the Commission's argument for ISDS:

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.

There is no need to trade off sovereignty for "investor protection", because people are already investing both ways across the Atlantic on a scale that is unmatched in the rest of the world. There is simply no problem that needs solving, and so ISDS is just unnecessary.

The rest of the Consultation notice tries to ignore this key fact by quoting a bunch of irrelevant statistics:

So far, the EU 's Member States have concluded about 1400 Bilateral Investment Treaties on the protection of investment. Virtually all such agreements include ISDS. While nine EU Member States currently have bilateral investment treaties with the US, other s do not. This situation means
that some EU investors in the US are treated differently co mpared to other EU investors, and that US investors have more rights in some EU Member States than in others .

As I've noted before, those 1400 bilateral treaties were essentially the EU imposing onerous conditions on developing countries; ISDS was there to be used as an offensive weapon.  Including it in TTIP will simply hand 50,800 US subsidiaries the most powerful legal weapon they could possibly wish for.

And as for the nine EU Member States that already have bilateral treaties with the US, what this fails to mention is who exactly those are: Bulgaria, Croatia, Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania and the Slovak Republic.  In other words, these were all countries that had been forced into the Soviet sphere, and which were therefore desperate to strengthen links with the US when the Soviet Union collapsed.  Dwarfed by the latter's economy, there were in no position to haggle, and naturally accepted ISDS as part of the deal.

Unless the European Commission wants to suggest that the other 19 members of the EU should be equally supine in agreeing to whatever the US demands, those earlier bilateral treaties born of real fears over economic and military security, are completely irrelevant to TTIP, and offer no precedent for including ISDS.

The other important element of the Consultation notice is the claim that whatever problems ISDS might have had in the past, the Commission is *on* it:

The Commission is propos ing a n innovative approach on investment protection and ISDS for the TT I P. It draws on lessons learnt and from experience with existing inve s t ment treaties and with how the ex isting ISDS arbitration system works . It addresses the concerns and shortcomings that have featured prominently in public discussion s a bout investment protection and ISDS .

Sounds great, but there's a problem: Karel De Gucht has not kept his promise as regards letting us see exactly how the Commission proposes to address ISDS's admitted "concerns and shortcomings".  Here's what he said when he announced it:

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.

The problem is that there is still no draft text of the ISDS chapter for us to examine.  Instead, this is what we've got in the main consultation document [.pdf]:

Each issue is illustrated using reference texts as examples , taken from other investment agreements and from the approach developed in the EU - Canada (CET A) negotiations, which is the most recent text negotiated by the EU.

That is, instead of that promised "draft text", we have "examples", and a recent text of the provisions in the Canada-EU Trade Agreement (CETA) that has been discussed several times in these updates, of which Update XIV is probably the most relevant here.  That's because it reports on some great analysis carried out by the Seattle to Brussels Network (SBN), working from a late, leaked copy of CETA's ISDS provisions.  This shows that essentially all of the claimed "improvements" that the Commission has made to ISDS in CETA are actually pretty worthless: they are full of loopholes and loose wording that skilled lawyers will have a field day with.

That means there are only two possible situations.  Either the Commission proposes to use a text close to that employed in CETA - in which case, the ISDS provisions are just as dangerous as they have always been, and the cosmetic changes made by the Commission will do little to change that.  Or else the Commission plans to use a radically different text from the one in CETA that does address the serious problems - in which case the current consultation is pointless, since we can't actually see that text, despite what De Gucht said.

Either way, the ISDS consultation is a sham, and should not be regarded as a serious attempt to engage with "the public", despite fervid claims to the contrary.  In a future Update I'll be making specific recommendations about how to reply to it before the closing date of 6 July 2014.  As you can probably guess, the tenor of my response will be simple: we don't need ISDS in TTIP, so don't even bother trying to salvage it - just get rid of it completely.

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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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