TTIP Update XLIX

As is widely appreciated by now, TTIP is about regulatory harmonisation rather than about lowering tariffs, since the latter are already extremely low.  That raises the central question: how can TTIP harmonise without lowering standards, which the European Commission has stated categorically will not happen with TTIP?  An early update, back in 2013, hinted at a resolution of this conundrum.  TTIP would not, in itself, lower standards, but it would create a machinery that would progressively lower standards after TTIP had been ratified.  That would allow the European Commission to claim - truthfully - that TTIP did not lower standards, while at the same time setting in train a process that would both bring in harmonisation, and lower standards.

In December 2013, we had a leak of a position paper on "regulatory coherence" [.pdf] that hinted at what was to come.  And now, thanks to the Greens MEP Michel Reimon, we have our first real TTIP leak on the subject .  It even comes with a nice cloak-and-dagger angle, since it has been re-typed from the original leaked document to protect the source.

Specifically, it's the EU's paper on the regulatory co-operation on financial regulation in TTIP [.pdf].  This is one of the many really hotly-contested areas, and one where US regulations are stricter than those in the EU.  EU corporations therefore want to use TTIP as a way of undermining US laws (de-regulation is a threat for both the EU and the US.)

Here's the basic aim:

The Parties commit to engage in a process towards convergence of their respective regulatory and supervisory frameworks for financial services.

And here's how they aim to do that:

The Parties hereby establish the Joint EU/US Financial Regulatory Forum ("the Forum").

The Forum is in charge of regulatory co-operation between the Parties in the domain of financial services.

What's troubling is the following:

The Joint EU/US Financial Regulatory Forum shall agree on detailed guidelines on mutual reliance adapted for each specific area of financial regulation no later than one year from the entry into force of this agreement.

It's deeply worrying that European politicians and governments will be asked to sign up to TTIP where one of its most important mechanisms - the Financial Regulatory Forum - is left undefined.  As Michel Reimon rightly says in his blog post accompanying the leak (original in German):

Thus a Parliamentary resolution [to accept TTIP] would become a blank cheque: we would create a body whose way of working we don't know, and would only learn a year later, when we would have to implement it.  Every MEP that agrees to this proposal is giving up his or her independent mandate.

This is an important leak, because it gives us a first glimpse of how TTIP is likely to frame the regulatory co-operation, at least in the financial sector.  By an interesting coincidence, another leak in the same area has just appeared on the Corporate Europe Observatory site, which concerns the overall approach to regulation.  The document runs to ten pages [.pdf], and is written in fairly opaque terms; I recommend reading the Corporate Europe Observatory's excellent analysis instead.  Here are some of the main points.

According to the proposal, as soon as a new regulation is in the pipeline, businesses should be informed through an annual report, and be involved. This is now called “early information on planned acts”, until recently called “early warning”. Already at the planning stage, “the regulating Party” has to offer business lobbyists who have a stake in a piece of legislation or regulation, an opportunity to “provide input”. This input “shall be taken into account” when finalising the proposal (article 6). This means businesses, for instance, at an early stage, can try to block rules intended to prevent the food industry from marketing foodstuffs with toxic substances, laws trying to keep energy companies from destroying the climate, or regulations to combat pollution and protect consumers.

This immediately indicates how the proposed system will act as a brake on democratic decision-making.  When proposals are put forward in the EU, say, they will be lobbied against using the new mechanism, making it much harder to bring in bold ideas.  It is essentially creating a new, and even more powerful forum for lobbyists to use in order to achieve their paymasters' goals.  Here's another way that sovereignty will be reduced:

New regulations should undergo an “impact assessment”, which would be made up of three questions (article 7, reduced from seven in the earlier proposal):

- How does the legislative proposal relate to international instruments?
- How have the planned or existing rules of the other Party been taken into account?
- What impact will the new rule have on trade or investment?

Those questions are primarily tilted towards the interests of business, not citizens. Thanks to the “early information” procedure, businesses can make sure their concerns are included in the report, and should it go against their interests, the report will have to cite a detrimental impact on transatlantic trade.

What's striking here is that everything - without exception - is seen through the optic of business.  There is no account taken of social impact, health or environmental issues.  Since many measures tackling climate change, for example, will have negative consequences for big business that profit from pollution, it's easy to see the proposal being used to slow down action here even more.

The model presented by the EU negotiators gives big business many tools that will allow them to complain about an “envisaged or planned regulatory act”, and regulations under review (article 9 and 10). In particular, a “regulatory exchange” must take place if a Party is unhappy with the effect of a proposed rule on its trade interests. A dialogue will have to take place, and the Party whose rules are under attack, must co-operate, and must be prepared to answer any given question.

The latest leak also tells us that the transatlantic body responsible for overseeing this filtering process has a new name:

The Regulatory co-operation Body (RCB) under TTIP – previously known as the Regulatory co-operation Council – will have the overall responsibility for regulatory co-operation and one of its obligations will be to “give careful consideration” to businesses proposals on future and existing regulations (article 13).

The name may have changed, but the overall intent hasn't: to put business firmly in the driving seat when it comes to drawing up EU and US regulations.  That is no longer purely a trade issue, as tariff adjustment is.  Regulations define and shape a society's culture; the regulatory chapter's avowed aim of making all regulations serve business and the pursuit of profit implicitly makes society's wider needs subservient to those of corporates. Of course, the European Commission is fully aware of this implication; and so, at the beginning of this chapter on regulation, we find the usual cant about "public policy objectives":

The provisions of this Chapter do not restrict the right of each Party to adopt and apply measures to achieve legitimate public policy objectives at the level of protection that it considers appropriate, in accordance with its regulatory framework and principles.

But those words are worthless.  In theory, that "right" may still exist, but in practice, everything in the leaked document is geared to making it easier for business to obstruct democratic decisions, and to impose a corporate agenda on the entire regulatory process - even down to requiring everything to be judged in purely financial terms.

These two latest leaks are important because they have nothing to do with the Investor-State Dispute Settlement (ISDS) chapter that has currently dominated the TTIP debate.  They remind us that ISDS is far from the only danger to national and EU sovereignty, and that we must not think that removing ISDS from TTIP (and the other trade deals with Canada and Singapore) is the end of the story.

The idea of creating any kind of transatlantic "Regulatory co-operation Body" with powers to subvert or even just impede the framing of laws and regulations is clearly incompatible with EU and US legislative institutions, and must be nipped in the bud.  That's at least possible thanks to the people who have generously made these leaked documents available, revealing yet more secret machinations by the European Commission to circumvent democracy.

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TTIP Update XLVIII

As I've noted many times before, the investor-state dispute settlement (ISDS) mechanism has long been the most contentious aspect of TTIP, and that was reflected in the unexpected decision to hold a consultation on the area last year.  The hope seems to have been that this would keep critics quiet, and allow the European Commission to come up with a few minor tweaks to its proposals while claiming that the public had been allowed to air their views.

It didn't quite work out like that.  An unprecedented 150,000 replies were received - and this was on a hitherto obscure aspect of a traditionally boring trade agreement.   That number alone bespeaks a  new relationship between the public and the politicians who are supposed to serve them.  And so the results of that consultation have been eagerly awaited: how exactly would the European Commission manage to turn the ultimate lemon into lemonade?

Now we know: they didn't.  The 140-page analysis [.pdf] is almost entirely statistical, providing useful but rather dry summaries of how many people said what kind of thing. Here's the Commission's potted version:

The vast majority of replies, around 145,000 (or 97%), were submitted through various on-line platforms of interest groups, containing pre-defined, negative answers. In addition, the Commission received individual replies from more than 3,000 individuals and some 450 organisations representing a wide spectrum of EU civil society, including NGOs, business organisations, trade unions, consumer groups, law firms and academics. These replies generally go into more detail on the proposed approach. (See MEMO)

Broadly speaking, the replies can be divided into three categories:

    replies which indicate opposition to or concerns around TTIP in general;
    replies opposing or expressing general concerns about investment protection/ISDS in TTIP;
    replies which provide detailed comments on the EU’s suggested approach in TTIP, representing broad and divergent views;

The many replies in the first two categories are a clear indication of the concerns that many citizens across Europe have concerning TTIP generally and about the principle itself of investment protection and ISDS.

More important than that analysis is the European Commission's attitude to the results, and what it intends to do now.  Here's what the Commissioner for Trade, Cecilia Malmström is quoted as saying:

“The consultation clearly shows that there is a huge scepticism against the ISDS instrument”, said Cecilia Malmström, Commissioner for Trade, in a comment.

“We need to have an open and frank discussion about investment protection and ISDS in TTIP with EU governments, with the European Parliament and civil society before launching any policy recommendations in this area. This will be the first immediate step following the publication of this report. I also note that there were constructive proposals in the consultation on areas that can be reformed.

Specifically:

In the first quarter of 2015, the Commission will organise a number of consultation meetings with EU governments, the European Parliament, and different stakeholders, including NGOs, business, trade unions, consumer and environment organisations, to discuss investment protection and ISDS in TTIP on the basis of this report. As a first step, the consultation results will be presented to the INTA Committee of the European Parliament on 22 January. Following these consultations during the first quarter, the Commission will develop specific proposals for the TTIP negotiations.

Yes, the response to the consultation’s overwhelmingly negative outcome is...to hold yet more consultations.  That is of a piece with the consultation itself, which was clearly designed for professional lobbyists who are paid (handsomely) to spend much of their time responding to such consultations.  Running a few more just means they get paid longer.  But for the public, the opposite is true: repeated consultations are likely to wear down people's ability to respond, not least because the public has to earn a living, and therefore filling in forms - never mind attending meetings - represents a real cost to them.

The same contempt for ordinary people struggling to understand and respond to highly complex concepts in order to make their hitherto ignored views heard is present throughout the analysis:

About 70.000 replies consist of seven different batches, submitted through eight different NGOs. Each batch contains identical or very similar answers to all 13 questions;

Some 50.000 replies submitted via one NGO contai n a different pattern. Questions 1 to 12 were answered with a general statement, as follows: "no comment – I don’t think that ISDS should be part of TTIP", while various individual answers were given to the last question (N° 13-general assessment).

Finally, there are around 25.000 replies which present similar features, i.e. no answer to questions 1 to 12 but only to question 13. The answers to question 13 are different but most of them express similar views. It was not possible to identify the source of these replies. Howe ver, given the similarities  with the other collective submissions they were considered, for th e purposes of this report, as collective submissions as well.

It's clear these "collective submissions" are regarded as inferior in some way to the doubtless highly polished replies from corporations and their lobbyists.  The views of a senior US official, quoted in an article from European Voice, are even more contemptuous:

Europeans should be careful about giving the same weight to “a thoughtful response or a one-liner saying ‘I hate TTIP’”, he said, going on to question the commitment of some anti-TTIP NGOs to transparency. “In the US, NGOs publish their finances, but in Europe, we don’t really know,” he said. “We need to understand better; everybody should understand who is behind the NGOs.”

Lovely: not only are the simple expressions from the public less valid than those "thoughtful responses" from big companies and others, but the unnamed senior US official even goes so far as to indulge in a little ad hominem attack: "everybody should understand who is behind the NGOs".  Got that? Those 145,000 negative responses are actually an underhand and carefully-orchestrated conspiracy by dark forces - probably communists - who just hate America for its freedom...

Returning to the less paranoid world of the European Commission, we read:

“we need to reflect upon how to address the fact that EU countries already have 1400 bilateral agreements of this kind, of which some date back to the 50s”, added Malmström.

"The vast majority of these agreements do not include the kind of guarantees that the EU would like to see. This will also have to be an important element of our reflection when considering how to best deal with the question of investment protection in EU agreements, as failure to replace them by more advanced provisions will mean they remain in force – with all the legitimate concerns they have been raising over the last months", the Commissioner highlighted.

This is a very weak argument.  The vast majority of those 1400 bilateral agreements include ISDS as a weapon for European nations to use against developing nations: there is practically zero danger of ISDS being used against the EU by these countries, which have few investments in Europe.  So forcing Europeans to accept the many and major risks of ISDS as a kind of "dry run" for updates that aren't even needed is just ridiculous.

For TTIP, the central question is just: do we need ISDS? The simple answer is: we do not.  The EU and US have extremely well-functioning legal systems that make ISDS unnecessary.  That's not just my opinion, it's the opinion of thousands of investors that have put their money into both the US and EU.  The sums involved are vast: in 2012, the EU had invested € 1.655 *trillion* in the US, and the US had invested € 1.536 trillion in the EU.  By now, that figure will be much higher.  That's clear proof that ISDS is not needed in order to encourage investment on a scale unmatched anywhere else in the world.  And finally, for any company that still thinks it needs some kind of protection when it invests abroad, there is an insurance scheme run by the World Bank designed specifically for this purpose, making ISDS unnecessary.  These three simple facts make all the details about the European Commission's proposed "improvements" to ISDS irrelevant: you don't waste time and effort fixing what you don't need.

However, the very real dangers of ISDS - admitted even by the European Commission - mean that ISDS should not only be dropped from TTIP, but that it must go from the agreement with Canada (CETA), and the one with Singapore, neither of which is finalised yet.  Both of these include ISDS, which would give companies from other countries - the US in particular - the ability to sue the EU indirectly.  That, in its turn, will bring with it a regulatory chill as EU nations think twice about bringing in laws and regulations that might lead to claims under ISDS.

No matter how many times the European Commission repeats that it won't let ISDS force a government to change its law - something that has already happened - the mere threat of costly legal action and huge awards will still interfere with democratic decision-making.  That alone is reason enough to drop ISDS.  Combine that fact with the unequivocal rejection by 145,000 people who went to the trouble of participating in the ISDS consultation, and this shouldn't even be a question any more.

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TTIP Update XLVII

As long-suffering readers of this column wil have noticed, the dominant theme of the discussions around TTIP so far has been the investor-state dispute settlement provisions (ISDS).  We are still waiting for the European Commission's analysis of the massive response to its consultation on the subject - it will be fascinating to see how it tries to put a positive spin on the overwhelming public refusal of ISDS in TTIP. 

The issue that crops up most often after ISDS is probably transparency - or rather the complete lack of it.  Yes, it's true that there have been some token releases of documents: initial position papers in 2013, and some more in 2014; but these don't really tell us much that we didn't already know, or could guess.  The main obstacle to greater openness was Karel De Gucht, the European Commissioner for Trade when TTIP was launched.  As he showed time and again during the ACTA fiasco, he had little but contempt for the European public and its unconscionable desire to know what the politicians whose salaries it pays are up to in Brussels.  That made his retirement at the end of last year an important moment and opportunity.

His successor, Cecilia Malmström, is cut from a very different cloth, as was apparent from this announcement right at the start of her tenure of De Gucht's post:

'TTIP is an immensely important agreement,' said Commissioner Malmström, 'with huge potential to create jobs and growth and to set standards. Yet, even though the TTIP talks are the most transparent and open the Commission has ever conducted, there are still a lot of doubts around what is being negotiated.'

'That's why we want to consult even more extensively on TTIP, and go even further in terms of transparency. Increased transparency will enable us to show, more clearly, what the negotiations are about and to de-mystify them. We will use this as a basis to engage further with a broad range of stakeholders and the public,' said Malmström.

The Commissioner outlined two main proposals for boosting transparency.

First, to extend access to TTIP texts to all Members of the European Parliament, beyond the currently limited group of Members of the European Parliament’s International Trade Committee.

Second, to publish texts setting out the EU's specific negotiating proposals on TTIP.

As I've discussed many times, TTIP does not have "huge potential to create jobs and growth", even under the most optimistic assumptions, but it's certainly important, so Malmström's promise of consulting "even more extensively" is extremely welcome.  Indeed, I was pleasantly surprised last month to experience first-hand just how extensively she means to consult:

Whether that meeting actually happens, remains to be seen.  But Malmström's two main proposals for "boosting transparency" have now been implemented.  The first of them - providing access to MEPs - happened immediately.  The second, publishing actual negotiating texts - happened earlier this week:

The European Commission today published a raft of texts setting out EU proposals for legal text in the Transatlantic Trade and Investment Partnership (TTIP) it is negotiating with the US. This is the first time the Commission has made public such proposals in bilateral trade talks and reflects its commitment to greater transparency in the negotiations.

Specifically, here's what is being made available:

The so-called 'textual proposals' published today set out the EU’s specific proposals for legal text that has been tabled in the proposed TTIP. They set out actual language and binding commitments which the EU would like to see in the parts of the agreement covering regulatory and rules issues. The eight EU textual proposals cover competition, food safety and animal and plant health, customs issues, technical barriers to trade, small and medium-sized enterprises (SMEs), and government-to-government dispute settlement (GGDS, not to be confused with ISDS). Today, the Commission has also published TTIP position papers explaining the EU's approach on engineering, vehicles, and sustainable development, bringing the total number of position papers it has made public up to 15.

To make the online documents more accessible to the non-expert, the Commission is also publishing a 'Reader's Guide', explaining what each text means. It is also issuing a glossary of terms and acronyms, and a series of factsheets setting out in plain language what is at stake in each chapter of TTIP and what the EU's aims are in each area.

That's certainly a big step forward for transparency, as is to be welcomed.  However, not everything is available yet.  For example, in two areas that are likely to be of particular interesting to readers of this column - "Information and communication technology" and "Intellectual property rights" - we only have some rather thin factsheets.  The first of these [.pdf] is particularly slight - just one page.  Perhaps the only element of interest is the following:

In ICT, we want to:

set common principles for certifying ICT products, especially for encoding and decoding information ('cryptography' in the jargon).

But the European Commission is quick to assure us that:

The EU won’t accept lower security levels. We want common principles for assessing how products comply with regulations.

Presumably that means the EU and US will agree to use the same set of backdoors in crypto tools...

On the copyright and patent front [.pdf], it's striking that the Commission is still assuring us that TTIP is not ACTA 2.0 - evidence once more of how deep the fears run of another defeat at the hands of the European Parliament - for example:

The EU and US have detailed enforcement provisions already, whereas some other countries that planned to join ACTA didn't. So we won’t negotiate rules on things like:

penal enforcement

internet service provider liability.

The idea that criminal penalties and ISP liability were only in ACTA because "some countries" did have strong enforcement is ridiculous: they were there because powerful copyright lobbyies in the EU and US wanted them there.  But it is nonetheless welcome to have set down here that neither will be present in TTIP.

The most recent release of TTIP documents shows two things.  First, that we have started the journey towards real transparency, but by no means arrived there yet.  And secondly - and perhaps most importantly - that public advocacy does work.  Although it is true that the present move owes a lot to  Malmström - and kudos to her for taking this step - it is also true that it would never have happened had not thousands of people demanded more openness.  It demonstrates what can be done simply by asking in a polite but persistent manner, and encourages us to keep doing so.

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TTIP Update XLVI

Not much has been happening on the TTIP front during the holiday break, but there's one extremely important report that came out a little earlier that I'd like to explore in this update.  It's called "The hidden cost of EU trade deals: Investor-state dispute settlement cases taken against EU member states", and has been put together by Friends of the Earth Europe.  As that title makes clear, it's about an aspect of the ISDS mechanism that has so far been overlooked: the fact that the EU has *already* suffered as a result of the inclusion of ISDS in other agreements.  As such, they give a foretaste of what's likely to happen if ISDS is included in TTIP (and CETA):

One of the European Commission’s arguments supporting the inclusion of the mechanism in those trade deals is that EU member states have already signed thousands of trade and investment agreements, which include such investor-state dispute arbitration. Investor-state arbitration has become a consistent feature bilateral investment treaties (BITs), with EU member states being party to some 1,400 BITs including ISDS since the late 1960s. So the European Commission says it should be part of the agreements now under negotiation.

What the European Commission rarely mentions is how often this mechanism has been used against EU member states, and how much this mechanism has cost EU taxpayers. The ongoing negotiations of trade and investment agreements – including the Transatlantic Trade and Investment Partnership, the Transpacific Partnership, and negotiations between the EU and the US respectively with China – are unprecedented in size and scope, and would drastically expand the extent of foreign direct investments covered by investor-state arbitration. Such an expansion would risk seriously undermining governments’ ability to regulate for the protection of people and the environment.

Here are the report's key findings:

127 known ISDS cases have been brought against 20 EU member states since 1994. Details of the compensation sought by foreign investors was publicly available for only 62 out of the 127 cases (48%). The compensation sought for in these 62 cases amounts to almost €30 billion.

The total amount awarded to foreign investors – inclusive of known interest, arbitration fees, and other expenses and fees, as well as the only known settlement payment made by an EU member state – was publicly available for 14 out of the 127 cases (11%) and amounts to €3.5 billion.

The largest known amount to be awarded by a tribunal against an EU member state was €553 million in the Ceskoslovenska Obchodni Banka vs. Slovak Republic case (1997).

The report is valuable not just for bringing all these figures together for the first time, but for providing details of several of the most significant cases.  They're all well-worth reading, since they flesh out the otherwise rather dry ISDS concept.  I'd like to focus on one, which raises some particularly important issues.  Here's the report's summary of the case:

The Micula brothers invested in the North West region of Romania – setting up multiple food processing, milling and manufacturing businesses. In 2005, the claimants initiated a dispute against Romania seeking compensation to the tune of €450 million. The case emerged following a series of decisions taken by Romania, which altered or withdrew a number of investment incentives (ie: exemptions from custom duties and certain taxes) that had previously been offered to the Micula brothers in support of their investment in a disadvantaged region of Romania. Romania argued that the regulatory changes they made were warranted, as they were implemented as part of the lead up to accession to the EU in 2007. In December 2013 the tribunal found Romania in breach of the Sweden-Romania BIT and obliged to pay more than $250 million (€183,311,335) in damages.

Clearly, $250 million is a lot of money for a government like Romania to find, money that will have to be taken from other areas of the country's budget - perhaps things like health provision and education.  That's bad enough, but what's really problematic here is that Romania withdrew the investment incentives involved in the case because the European Commission required it as a condition of Romania's accession to the European Union:

The Micula vs. Romania case has incited a great deal of interest, particularly in relation to the sovereignty of EU law. The European Commission (EC) intervened and attempted to convince the tribunal that the actions implemented by Romania were taken in an effort to comply with EU law obligations to eliminate state aid (ie: subsidies and incentives). The Commission argued that if the tribunal ordered Romania to pay compensation it would be considered state aid under a different pretense. The arbitrators were not swayed by the EC’s interventions and, in relation to the enforceability of the final award, drew "attention to Romania’s obligations under the ICSID Convention to comply with the final ICSID awards."

Put simply, what that means is that the tribunal ruled that when it came to protecting investments, EU law should be ignored - a real slap in the face for the European Commission, which had made a direct intervention to avoid just such an outcome. 

This is the key problem with ISDS: it places the rights of corporations above the rights of nations - indeed, in this case, above the rights of the EU to determine law within its borders.  ISDS cannot be "fixed", as the European Commission would have us believe, because it was designed with exactly this purpose in mind: it was introduced as a way of protecting investments in countries where the local rule of law could not be depended upon.  Since that is manifestly not the case in the EU or US, it serves no purpose other than to undermine the strong legal systems there.  The only solution is therefore to drop ISDS from TTIP, CETA and all future agreements.

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TTIP Update XLV

The TTIP negotiations are in trouble.  After 18 months of talks, the EU and US have precious little to show.  And external factors such as the imminent Presidential race in the US means that time is running out to get the deal signed and sealed.  Against that background, there is signs of a (rather feeble) attempt to put “rocket boosters” under the negotiations, as David Cameron likes to phrase it - although he forgets that rocket boosters can also explode on take-off, destroying their cargo completely.

For example, earlier this week the UK government published a Web page entitled "Transatlantic Trade and Investment Partnership (TTIP): benefits and concerns".  Rather surprisingly, it consists entirely of re-heated numbers that I've debunked in earlier TTIP Updates.  Is that really the best they can do? Curiously, TTIP proponents are calling for a political debate based on "facts" and "hard evidence".  I say: bring it on, because the facts are actually pretty damning for most of the hyperbolic claims made by the European Commission as pro-TTIP governments like the UK's.

Always in search of facts about transatlantic trade, I was delighted to come across a publication [.pdf] from the American Chamber of Commerce to the European Union among others, detailing the transatlantic economy 2013. These are figures from a strongly pro-trade group, and surely represent precisely the kind of "facts" and "hard evidence" that supporters of TTIP are calling for.  So let's take a look at some of the key areas.

US-EU merchandise trade totaled an estimated $650 billion in 2012, up 68% from $387 billion in 2000.

In other words, transatlantic trade is already huge, and growing.  So the idea that we desperately need TTIP to make that happen seems curious to say the least.  What about US investments in Europe?  Some figures from the report:

The US and Europe are each other’s primary source and destination for foreign direct investment.

Europe has attracted 56% of US global foreign direct investment (FDI) since 2000.

On a historic cost basis, the US investment position in Europe was 14 times larger than the BRICs and nearly 4 times larger than in all of Asia at the end of 2011.

Here's European investment in the US:

European investment in the US, on historic cost basis, was $1.8 trillion in 2011, 71% of total FDI in the US.

even in bad year 2011 Europe’s investment flows to the US were 7 times larger than to China.

In 2011 total assets of European affiliates in the US were an estimated $8.6 trillion. UK firms held $2.2 trillion; German firms $1.5 trillion; Swiss and French $1.3 trillion each; and Dutch firms $959 billion.

So, the "facts" and "hard evidence" suggest that transatlantic trade is booming; in particular, transatlantic investment is at dizzyingly-high levels - and all of that has taken place in the absence of ISDS.  The argument that TTIP "must have" ISDS in order to keep the investment flowing is not just wrong, but an insult to our intelligence.

Another area where I would like to see some facts and hard evidence involves claims about the alleged boost that TTIP will give to the EU and US economies.  I've debunked the 119bn euros figures regularly trotted out by the European Commission - but without explaining that this is a best-case result in 2027 - on a number of occasions.  I've also noted that there is criticism of the basic modelling technique used in the CEPR study paid for by the European Commission, something known as "Computable General Equilibrium" (CGE).  But I have recently come across a fascinating document from the European Court of Auditors, which describes itself as "Guardians of the EU's finances".  Here are a couple of things that august body has to say about the use of CGE models [.pdf]:

Both the Commission and the external consultants have also highlighted the inherent limitations of the CGE model:

(a) the CGE model can only be used for simulation purposes and not for forecasting and its simulation of long‑run effects is tenuous ;

(b) its somewhat tautological construction, i.e. all results are implicitly linked to the assumptions and calibra tion made

In other words, not only is it impossible to make forecasts with CGE models - let alone ones out to 2027 as the CEPR model does for TTIP - but the results are more or less built in to the assumptions of the model anyway.  That 119bn euros GDP boost cited endlessly by the European Commission is looking shakier than ever.  But there's actually an even more profound problem with the quantification of the claimed benefits of TTIP.  These are explored in a brilliant blog post by Martin Whitlock, whose analysis of TTIP I have cited before. 

The post is entitled 'The E.U. needs to learn the true meaning of "wealth" ', and Whitlock begins by referring to recent moves by the new European Commission:

Reports emerging from the European Commission last Thursday suggest that two key environmental proposals may be dropped from its programme. The object is to reduce the number of regulations with which businesses must comply.

If true, the associated losses could be considerable. The Clean Air package could deliver “monetised air quality benefits” of up to €151 billion per year by 2025, according to the E.U.s impact assessment. The Circular Economy package, which is focused on recycling, offers net savings to businesses of a staggering €604 billion through “resource efficiency”. To put that in context, the controversial Transatlantic Trade and Investment Partnership (TTIP) promises a boost to E.U. GDP of €120 billion by 2027 in the best case scenario.

Why would the Commission want to drop widely-supported proposals for clean air and recycling worth a potential €755 billion between them, while pursuing a controversial trade deal worth €120 billion at best? The answer lies in the provenance of those numbers, all of which are measuring different things.

His post then goes on to analyse this situation, and shows how much of the problem is that the debate around TTIP tends to focus selectively on a few misleading numbers - like 119bn euros.  Doing so ignores the broader context - and the availability of other, rather different, solutions:

A clean environment ... provides direct social benefits for everybody. The additional costs incurred by business will be repaid in spades by improvements in quality of life and human wellbeing. In this scenario, corporate profits may grow less quickly, but the totality of human wealth has greater potential for sustained increase in the longer term.

Whitlock concludes:

If the E.U. is keen to assert leadership on these issues, it could do worse than reflect upon what “wealth” really means for its 500 million citizens. Higher corporate profits extracted from an increasingly “flexible” labour market is probably not the answer to this question. Among possible alternatives: clean air to breathe; an affordable place to live; a fair share in the wealth that society produces and the time to enjoy it. All things that GDP can’t measure and which form no part of what  "economic growth" currently means.

That's a truly profound reflection that the European Commission should really take to its heart - but won't.

Full list of previous TTIP Updates.

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TTIP Update XLIV

The TTIP negotiations have started in earnest - before, meetings were largely preliminary, aimed at establishing the general positions of both the EU and US.  And yet, curiously, very little seems to be happening, at least publicly.  The next official round is not until early February next year, although it seems likely that informal meetings are still taking place behind closed doors. 

One reason for this hiatus is that there has been a change at the top.  Karel De Gucht has relinquished his post, which has been taken by the Swede Cecilia Malmström.  She is adopting a very different style, not least in terms of her attitude to the public.  Faced by the growing scepticism about TTIP's benefits, and anger over its complete lack of any meaningful transparency, Malmström has taken a conciliatory approach, promising more openness, some of which has now been announced.

But Malmström is still trotting out the same old misinformation about TTIP.  In a recent opinion piece she published in the Frankfurter Allgemeine Zeitung, the paragraph about ISDS is particularly pernicious.  Malmström says that European member states have signed a total of 1400 agreements that include ISDS; this is presumably to "prove" that ISDS is completely normal and totally harmless.  Neither is true.

Those 1400 agreements were overwhelmingly with developing nations.  The ISDS clauses were there to protect European investments in countries where the judicial systems were perhaps less than fair and reliable.  In a sense, these were one-way ISDS chapters, since companies from those emerging nations almost never invested in Europe, and thus were unable to avail themselves of the ability to sue for alleged expropriation there - that's why European nations have rarely been sued under these trade agreements.

Moreover, just seven of those 1400 agreements were with the US.  The countries involved were former Soviet states, plus Poland.  Even though in retrospect the terms of those agreements were pretty bad, they looked good as a way of escaping the clutches of Russia, and of encouraging the US to support the countries signing them.  Like the other ISDS chapters with developing countries, they are unrepresentative of what will happen with TTIP. 

For a start, US investment in those ex-Warsaw Pact countries is relatively low, which means the opportunities for it to use ISDS clauses are very limited.  Compare that with the whole of the EU, where there are around 50,000 subsidiaries of US companies, representing very substantial investments, and you can see that the risks of the EU or a member state being sued under ISDS in TTIP are vastly greater than was the case for those 7 earlier examples.  So Malmström's claim that ISDS wasn't a problem then, and so won't be a problem now, is simply false.

She then goes to admit that the current ISDS chapters are problematic, but that the EU has already addressed that objection by reforming ISDS in CETA, the trade agreement with Canada.  Specifically, she claims that in CETA:

Nations always have the freedom to decide about health systems, minimum wages and environmental protection.

That sounds good, but when you analyse the detailed wording of CETA's ISDS provisions, as the Canadian Centre for Policy Alternatives has done in its excellent, in-depth exploration of the final text, "Making Sense of CETA", this is what you find is actually the case as regards that supposedly strengthened "right to regulate":

The ‘right to regulate’ is mentioned three times in the agreement. In the preamble, the parties simply ‘recognize’ that the Ceta protects the right to regulate (“recognizing that the provisions of this Agreement preserve the right to regulate...”), yet the text fails to clearly and unequivocally confirm this right, especially in the investment chapter. The other mentions are to be found in the labour and environment chapters, so that, in effect, the Ceta shields the right to regulate from any international obligations to protect labour or the environment but not from all the detailed obligations in the investment chapter. Also in the environment chapter, the right to regulate is limited by formulations which require environmental policies to be implemented “in a manner consistent with the multilateral environmental agreements to which they are a party and with this Agreement,” meaning that environmental policies have to be consistent with the Ceta - not the other way round.

As that makes clear, far from protecting the EU's "freedom to decide" in the environmental sphere, as  Malmström claims, CETA actually imposes new constraints on governments.  The Canadian Centre for Policy Alternatives also points out that CETA is worse than earlier agreements in the way that the so-called "fair and equitable treatment" clause is framed.  This does not inspire confidence for TTIP, since we know from the consultation that the ISDS chapter will be modelled on the earlier agreement.

Even if it weren't, CETA's ISDS will be a disaster for Europe if it is ratified - something that is fortunately still a long way off.  That's because of the following:

The Ceta definition of ‘investment’ and ‘investor’ are overly broad and far beyond what would be advisable from a regulatory or public interest perspective. The Ceta defines an ‘investment’ as, “Every kind of asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment.” It defines an ‘investor’ as: “a Party, a natural person or an enterprise of a Party, other than a branch or a representative office, that seeks to make, is making or has made an investment in the territory of the other Party. For the purposes of this definition an ‘enterprise of a Party’ is: (a) an enter prise that is constituted or organised under the laws of that Party and has substantial business activities in the territory of that Party”). The reference to ‘substantial business activities’ is not enough to pre vent ‘treaty shopping.’ For example, U.S. investors in Canada would be able to use the C eta investment provisions and ISDS to challenge European state measures.

There's another trade agreement that the EU has recently finalised (but not ratified) that has exactly the same problem.  It's with Singapore, and the dangers of its ISDS chapter are analysed in an important post from the FFII.  If, like me, you don't know much about the EUSFTA, as it is know, this is a good place to start.  Here are a couple of the key issues:

1. The agreement creates a lock-in. Unlike most investment agreements ratified by European countries, it is not a stand-alone investment treaty, from which parties can withdraw. The investment chapter is part of a trade agreement, from which it is near impossible to withdraw.

2. The text lacks basic institutional safeguards for independence, creates perverse incentives and does not observe the separation of powers.

Expanding on the last point:

No institutional safeguards for independence

The text lacks basic institutional safeguards for independence: tenure, prohibitions on outside remuneration by the arbitrator and neutral appointment of arbitrators.

Perverse incentives

Arbitrators are paid for their task at least 3000 US dollar a day. This creates perverse incentives: accepting frivolous cases, letting cases drag on, letting the only party that can initiate cases (foreign investors) win to stimulate more cases, pleasing the officials who can appoint arbitrators.

No separation of powers

Both the claimants and the executive have a 50% influence on the make-up of [ISDS] tribunals. In a [national] court neither the claimant nor the executive has an influence on appointments, as both parties are not neutral.

A government may dislike a law by the former legislative and appoint an arbitrator accordingly. Only independent courts should decide on constitutional matters and questions of law.

It's that last point that remains the central problem with ISDS in TTIP: it effectively allows corporations to attack any legislation that affects their future profits, even if it has been passed by governments with an explicit mandate from the public.  Signing up to any treaty - be it CETA, EUSFTA or TTIP - that contains ISDS is thus nothing less than a fundamental betrayal of European democracy.

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TTIP Update XLIII

On Monday, I attended an interesting meeting at the Heinrich Böll Stiftung, in Berlin, with the intriguing title of "re:negotiate (ttip)".  This was valuable for two reasons.  First, because I had a chance to hear the arguments advanced by senior figures in the pro-TTIP world (surprisingly weak, even after all this time), and secondly, because I was asked to talk about "TTIP and global data transfer".  That's not something I've written much about here, so this gives me an opportunity to set down what I learned as I prepared for my session in Berlin.

The official negotiating mandate from the European Commission [.pdf], released recently (but very belatedly), does not mention words like "e-commerce, electronic services, telecommunications providers, cloud computing, data protection" at all, which is pretty extraordinary given their importance.  However, the section covering Trade in Services states:

The aim of negotiations on trade in services will be to bind the existing autonomous level of liberalisation of both Parties at the highest level of liberalisatio n captured in existing FTAs, in line with Article V of GATS, covering substantially all sectors and all modes of supply, while achieving new market access by tackling remaining long - standing market access barriers, recognising the sensitive nature of certa in sectors.

"GATS" is the overarching General Agreement on Trade in Services   The above paragraph would therefore seem to require that all kinds of e-commerce and online services should be covered by TTIP.  The Commission's mandate makes another reference to GATS here:

The [TTIP] Agreement will not preclude the enforcement of excep tions on the supply of services justifiable under the relevant WTO rules (Articles XIV and XIVbis GATS).

That's crucially important, because Article XIV includes the following exception:

nothing in this Agreement shall be construed to prevent the adoption or enforcement by any Member of measures:

(c)      necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement including those relating to:

(ii)     the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records and accounts;

That seems to provide the basis for the following statement in the European Commission's TTIP FAQ:

Will TTIP mean US data privacy standards prevailing over or undermining EU standards on the same?

No.  The EU and US have long since recognised that we each regulate data privacy in a different way.  The TTIP negotiations are not the right place to address these differences though.  We have already developed suitable ways of handling transatlantic data flows - for example, the Safe Harbour Agreement.  In addition, we are currently in talks with the US on access to data by enforcement authorities.  The aim is to get an 'Umbrella Agreement' on data protection to strengthen our joint efforts to combat terrorism and serious crime.  These talks will not be affected by the TTIP.

Of course, the Safe Harbour Agreement is a joke.  It basically lets US companies take personal data out of the EU, and do what they like with it by "self-certifying" that they are jolly nice people, and that they wouldn't dream of doing anything nasty with all our data, oh no, sir.  But thanks to Edward Snowden, we now know that once the data is out of the EU and across in the US, the NSA can and do access it freely - which is why the European Parliament's LIBE committee called for Safe Harbour to be suspended.

Leaving that big issue aside, there remains a central question: how exactly will data flows be handled in TTIP?  Despite the soothing words from the European Commission, it is by no means clear that European privacy will be preserved.  That's evident thanks to a US Bill that was proposed last year.  It has the significant title "Digital Trade Act of 2013", and it would have required the US negotiators in all future trade agreements to insist on a number of key demands:

It shall be a negotiating principle of the United States in negotiations for a bilateral, plurilateral, or multilateral agreement, and in multi-stakeholder fora, to seek the inclusion of binding and enforceable provisions that promote and enhance Internet-enabled commerce and digital trade, including provisions--

(1) preventing or eliminating barriers to the movement of electronic information across borders, including by encouraging interoperability of data protection regimes and eliminating barriers to accessing, processing, transferring, or storing information;

(2) ensuring transparency in measures affecting the free flow of information within and across borders;

...

(4) prohibiting measures that condition market access or other commercial benefits on localization of data, infrastructure, or investment;

(5) prohibiting any country from imposing measures that require an entity to use computing infrastructure or services in that country or otherwise require an entity to access, process, transfer, or store data in the territory of that country;

Those last two are absolutely key, since they would forbid any country that has a trade agreement with the US from passing laws that require local storage or processing of data. Even though the Bill was not passed, all the indications are that the US negotiators will demand precisely these provisions in TTIP.  That's a problem, because one way to improve the privacy of EU citizens would be to require that their personal data is stored and processed in the EU, and to forbid it being sent abroad. 

Despite what companies like Google and Facebook would have us believe, that wouldn't stop them providing their services here in the EU.  It would simply mean that all EU personal data would be held and processed in the EU, with other data necessary for the services being brought in from the US, say, rather than the other way around.  The Internet's symmetry makes that trivially simple, so to claim that it is impossible to work under this conditions is absurd.

In cases where personal information like physical addresses needs to be sent outside the EU so as to allow the delivery of goods, say, such information could be provided by using Vendor Relationship Management (VRM) systems, that allow users to retain full control of their personal data, while granting highly specific access to parts of it.  Indeed, developing VRM is a huge opportunity for the EU, and should be actively promoted irrespective of its usefulness in the context of TTIP.

Another meeting on TTIP took place yesterday, organised by the S&D group in the European Parliament.  That party's position is absolutely crucial for TTIP: without its support, TTIP will probably not be passed.  So it was no surprise that the new Commissioner for Trade, Cecilia Malmström, appeared here and gave her first official statement on the trade agreement.

Actually, it's stretching it to call it a "statement", because that would imply it had any content.  Instead, it was an extended set of comforting platitudes that boiled down to the same kind of self-certification used in the Safe Harbour agreement.  In other words, it was little more than empty promises that everything would be OK, just don't worry your pretty little heads about it.

One of the most worrisome parts came in the brief and superficial questions and answers that followed her words.  In it,  Malmström tried to allay growing fears about ISDS - which the French government has said it will not accept in TTIP - by pointing to the recently-concluded CETA agreement with Canada.  She claimed that the new and improved ISDS chapter there shows, once more, that there was nothing to worry about, etc. etc.

Of course, ISDS is such a technical area that is hard for most of us to evaluate that claim.  Fortunately, the indispensable Corporate Europe Observatory has carried out a detailed analysis of ISDS in CETA, and found that far from addressing the problems, it actually makes them worse:

In response to these widespread concerns the European Commission and the Canadian government have become increasingly defensive, and have begun a misleading propaganda drive. Their strategy: to appease the public by downplaying the risks of investment arbitration and to divert attention from the fundamental problems of the system by focusing on cosmetic reforms.

But a closer look at these “reforms” in the final CETA text (see Annex 2) shows that they will not “prevent any abuse of the investment protection rules and investor-state dispute settlement systems,” as the European Commission claims. On the contrary, CETA’s investor rights are arguably even more expansive than those in agreements such as NAFTA – most notably by protecting investors’ “legitimate expectations” under the so-called “fair and equitable treatment” clause and on investor-state disputes with regard to financial services (see Annexes 1 and 2). This is not surprising: the “reforms” are an echo chamber of what the business community has proposed to re-legitimise investor-state arbitration while leaving its problematic core intact.

The Annexes referred to provide detailed rebuttals in non-technical language of claims that ISDS has been improved in CETA.  Here's a sample. First, what the European Commissions claims:

Final award: A tribunal can award “only” monetary damages or restitution of property (Chapter 10, Article X.36). According to the EU this means that an order of a tribunal “cannot lead to the repeal of a measure adopted by Parliaments in the Union, a Member State or Canada.”

And here's what that actually means in practice:

This won’t stop governments from “voluntarily” repealing measures when a major lawsuit has been filed or threatened by a deep-pocketed company. Examples of such regulatory chill include the watering down of environmental controls for a coal-fired power plant when Germany settled a claim by Swedish energy company Vattenfall (see Box 2 on page 6) and New Zealand’s announcement that it will delay its plain-tobacco-packaging legislation until after Philip Morris’ claim against Australia’s anti-smoking rules has been resolved. This chilling effect on government regulation is arguably the main function of the global investment regime.

This latest report from Corporate Europe Observatory is an important contribution in the fight against the misleading comments being made by pro-TTIP politicians, both at the European and national levels.  They know that ISDS is in trouble as the public find out more about it, and are trying to fob people off with the promise that things will be better in TTIP, building on the claimed improvements present in CETA.

But there are no real improvements, just some textual fig leaves to give the appearance that concerns have been addressed.  If the European Commission and pro-TTIP politicians like David Cameron really want to save TTIP from massive rejection by the European public - the Stop TTIP petition has now reached 912,000 signatures - the only way to do that is to remove ISDS from TTIP, CETA and the new EU-Singapore free trade agreement completely.  Nothing else will do.

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TTIP Update XLII

The problems of TTIP are so many - total lack of meaningful transparency, the unnecessary inclusion of an ISDS chapter, the threat to Europe's high standards governing health, safety, the environment, labour etc. - that the agreement's supporters have been forced to fight back with the only thing they claim to offer: money.  TTIP, they argue in multiple ways, will take us to the land of milk and honey, boost the GDP massively, and lead to lots of extra dosh for every family in the EU.

But as I've explained, none of this is true.  Even the European Commission's own research shows that the most ambitious outcome - that is, one that is already totally unrealistic given the resistance that TTIP is meeting - would produce a boost to Europe's GDP of 0.5% - just 119 billion euros.  However, as I and many others have pointed out, this is after ten years, and therefore represents a *cumulative* boost to GDP, which therefore works out at around 0.05% GDP boost per year on average.  Here's someone else joining that chorus:

at the end of the simulation period in 2027, GDP would be 0.5 percent higher in a TTIP scenario than the baseline, non-TTIP scenario, implying negligible effects on annual GDP growth rates.

That comes from an important new study by Jeronim Capaldo from the Global Development and Environment Institute at Tufts University in the US.  It also points out the obvious fallacy with the European Commission's claim that EU households would gain 545 euros more every year:

these estimates are misleading since the studies provide no indication of the distribution of income gains: they are simply averages. With EU wages falling as a share of GDP since the mid-nineties, it is far from certain that any aggregate gains will translate into income increases for households living on income from wages (as opposed to capital).

Or, to put it more bluntly, claiming that any benefit from TTIP would be shared out equally among all families in the EU is only going to happen if communism sweeps across the continent - and about as likely.

Capaldo's study begins by pointing out the glaring flaws in the Computable General Equilibrium (CGE) model used by the studies invoked by the European Commission.  This CGE approach includes the astonishing assumption that employment will not change as a result of TTIP, because somehow the inevitable job losses in some industries will be magically balanced by job creation in others.  Morever, as I have discussed before, another huge flaw in the CGE approach is that it ignores the costs it brings.  As Capaldo puts it:

the strategy chosen to simulate a “TTIP future” has a strong impact on the results. Ecorys assumes that so-called "Non-Trade Barriers" impose a given cost on trade and that TTIP can remove up to one half of them. CEPR and CEPII borrow this approach, but assume a lower share. These barriers can include what other stakeholders refer to as consumer and environmental regulations. Phasing them out may be difficult and could impose important adjustment costs not captured by the models.

In an effort to avoid these and other problems, Capaldo uses a different model: 

To obtain a more realistic TTIP scenario, we need to move beyond CGE models. A convenient alternative is provided by the United Nations Global Policy Model (GPM), which informs influential publications such as the Trade and Development Report. The GPM is a demand-driven, global econometric model that relies on a dataset of consistent macroeconomic data for every country.

You can read the detailed results in his paper, but his title sums it up pretty well: "The Trans-Atlantic Trade and Investment Partnership: European Disintegration, Unemployment and Instability".  Using a more advanced model, that does not bake in ridiculous assumptions like no job losses, TTIP is predicted to produce the following chilling consequences for the EU and its citizens:

TTIP would lead to losses in terms of net exports after a decade, compared to the baseline “no-TTIP” scenario. Northern European Economies would suffer the largest losses (2.07% of GDP) followed by France (1.9%), Germany (1.14%) and United Kingdom (0.95%).

TTIP would lead to net losses in terms of GDP. Consistent with figures for net exports, Northern European Economies would suffer the largest GDP reduction (-0.50%) followed by France (-0.48%) and Germany (-0.29%).

Thus, even the paltry 0.5% GDP gains of the European Commission's study prove hopelessly inflated.

TTIP would lead to a loss of labor income. France would be the worst hit with a loss of 5,500 Euros per worker, followed by Northern European Countries (-4,800 Euros per worker), United Kingdom (-4,200 Euros per worker) and Germany (-3,400 Euros per worker).

This contrasts with that illusory 545 euros per household, as claimed by the European Commission.  Instead, a typical UK working family would lose thousands of pounds per year as a result of TTIP, according to this analysis.

TTIP would lead to job losses. We calculate that approximately 600,000 jobs would be lost in the EU. Northern European countries would be the most affected (-223,000 jobs), followed by Germany (-134,000 jobs), France (- 130,000 jobs) and Southern European countries (-90,000).

TTIP would lead to a loss of government revenue. The surplus of indirect taxes (such as sales taxes or value-added taxes) over subsidies will decrease in all EU countries, with France suffering the largest loss (0.64% of GDP). Government deficits would also increase as a percentage of GDP in every EU country, pushing public finances closer or beyond the Maastricht limits.

TTIP would lead to higher financial instability and accumulation of imbalances. With export revenues, wage shares and government revenues decreasing, demand would have to be sustained by profits and investment. But with flagging consumption growth, profits cannot be expected to come from growing sales. A more realistic assumption is that profits and investment (mostly in financial assets) will be sustained by growing asset prices. The potential for macroeconomic instability of this growth strategy is well known after the recent financial crisis.

Even if the UK escapes relatively unscathed on the employment front, losing "just" 3,000 jobs according to the new model, it is hit badly in terms of falling Government tax revenues (down 0.39% of GDP) at a time when the country's national debt is big and getting bigger.  In other words, far from being a panacea, a "once in a generation prize", as David Cameron called it, TTIP would probably fatally wound the European project, not least because it will lead to the economic hollowing-out of the EU - something already predicted in previous models.  Capaldo explains:

increases in trans-Atlantic trade are achieved at the expense of intra-EU trade. Implicitly, this means that imports from the US and imports from non- TTIP countries through the US will replace a large portion of current trade among EU countries.

Capaldo's conclusions make for grim reading:

First, as suggested in recent literature, existing assessments of TTIP do not offer a suitable basis for important trade reforms. Indeed, when a more realistic model is used, results change dramatically. Second, seeking a higher trade volume is not a sustainable growth strategy for the EU. In the current context of austerity, high unemployment and low growth, increasing the pressure on labor incomes would further harm economic activity.

Some will doubtless say this is just one model, and might be wrong.  But exactly the same argument can be applied to the widely-cited CEPR study, and yet the Commission is happy to accept its predictions uncritically, as if its figures were certainties. 

Whether or not you believe that Capaldo's model is superior - and that's a matter for economists to argue about - it would clearly be reckless to pursue the TTIP negotiations without commissioning much more detailed research to explore the agreement's likely impact, and to get a better idea of its real benefits - if any.

To give up national sovereignty because of ISDS's supranational powers, and weaken Europe's high standards in order to remove "non-tariff" barriers, is bad enough.  But to bargain them away in return for a flawed agreement that will harm every economy in the EU, and leave families thousands of pounds worse off, is just beyond stupid.

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TTIP Update XLI

In my last update, I noted that the highly-contested investor-state dispute settlement (ISDS) chapter remains the centre of attention, with rumours swirling around that the President-elect of the new European Commission, Jean-Claude Juncker, would pull a rabbit out of his hat by announcing that ISDS would be dropped.  That didn't happen, and it seems that once more, the UK is to blame.

A group of 14 EU nations - including the UK, Spain, Ireland and Denmark - sent a pointed letter to Juncker on the subject of TTIP and ISDS.  Here's the key part [.pdf]:

One of the issues that has attracted criticism is investment protection.  The Commission is currently analysing the results of a public consultation on this issue and we look forward to the Commission's response.  The consultation was an important step in ensuring that we strike a correct balance to ensure that governments retain their full freedom to regulate, but not in a way that discriminates unfairly against foreign firms.  It is important that the outcome of this consultation runs its course and we carefully consider the views expressed by our stakeholders before reaching firm decisions on the way forward.  The Council mandata is clear in its inclusion of investor protection in the TTIP regotations; we need to work together on how best to do so.

That one paragraph includes a number of very interesting points. First, there's the strange insistence on the importance of the public consultation on ISDS.  We know that the overwhelming majority of submissions were against ISDS, so it's odd to see the UK government and its allies place such great emphasis here.  This suggests to me that we are about to witness a stitch-up - for example, we might see 149,000 of the 150,000 submissions counted as just *1* or something similarly outrageous.  The outgoing trade commissioner, Karel De Gucht, has already hinted some trick along these lines might be adopted.

Then of course we have the line about ensuring "the correct balance" between governments' right to regulated and investors' rights to make profits.  As I've written before, there should be no  balance here, because clearly the sovereignty of governments is paramount: to suggest otherwise amounts to a silent coup against democracy.  But even more ridiculous is the letter's insistence that TTIP must ensure that foreign firms are not discriminated against.  That's downright laugable, because ISDS would give foreign firms extra rights that local firms *don't* have: foreign investors could use national courts and ISDS tribunals, whereas local companies could only use the former.  So it's the national companies who will actually be discriminated against under ISDS: foreign ones will gain huge new powers.

Finally, the letter says that the TTIP mandate [.pdf] is "clear in its inclusion of investor protection mechanisms", but it omits to mention the very important caveat there:

the inclusion of investment protection and investor-to-state dispute settlement (ISDS) will depend on whether a satisfactory solution, meeting the EU interests concerning the issues covered by paragraph 23, is achieved.

Paragraph 23 includes the following key section:

should be with out prejudice to the right of the EU and the Member States to adopt and enforce, in accordance with their respective competences, measures necessary to pursue legitimate public policy objectives such as social, environmental, security, stability of the fin ancial system, public health and safety in a non - discriminatory manner.

So the mandate is clear that ISDS is only included if it meets those requirements, not otherwise.  But there's an even more outrageous twisting of the facts earlier in the letter.  Right at the start, the UK and its mates assert:

The Transatlantic Trade and Investment Partnership (TTIP) will add over €100bn to EU GDP and has the potential to transform not just our own economies, but also the global economy.

As readers of this blog will recall, that €100bn figure is the *maximum* likely benefit, in the best of all possible worlds; here it is being put down as a certainty, not ifs or buts.  That's downright dishonest, and shows how desperate the pro-TTIP camp has become: it knows that the supposed arguments in favour of the agreement are weak that it is forced to claim the most extreme outcomes as certainties.  And yet, as readers will also know, that best-case €100bn figure is in 2027, and represents a footling 0.05% average GDP boost each year until then - statistically, that's indistinguishable for zero given the huge number of uncertainties in the econometric model used.  So the letter from the UK and friends is based on the flimsiest of reasoning, and is really quite a disgraceful piece of bullying.

Unfortunately, it seems to have had the desired effect.  Here's how Juncker responded in his speech to the European Parliament:

I took note of the intense debates around investor-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership (TTIP) negotiations. Let me once again state my position clearly, that I had set out on 15 July in front of this House and that you will find in my Political Guidelines: My Commission will not accept that the jurisdiction of courts in the EU Member States be limited by special regimes for investor-to-state disputes. The rule of law and the principle of equality before the law must also apply in this context.

The negotiating mandate foresees a number of conditions that have to be respected by such a regime as well as an assessment of its relationship with domestic courts. There is thus no obligation in this regard: the mandate leaves it open and serves as a guide.

I had thought my commitment on this point was very clear but I am happy to clarify and reiterate it here today as a number of you have asked me do so: In the agreement that my Commission will eventually submit to this House for approval there will be nothing that limits for the parties the access to national courts or that will allow secret courts to have the final say in disputes between investors and States.

I have asked Frans Timmermans, in his role as First Vice-President in charge of the Rule of Law and the Charter of Fundamental Rights, to advise me on the matter. There will be no investor-to-state dispute clause in TTIP if Frans does not agree with it too.

Again, there are lots of interesting details here.  First, the statement "My Commission will not accept that the jurisdiction of courts in the EU Member States be limited by special regimes for investor-to-state disputes."  That's clever, becauses it is trivially satisfied by ISDS actions.  They do not "limit"  jurisidiction in any way - national courts are untouched.  But what ISDS does provide is a *parallel* system that foreign investors can use to have a "second go" at suing governments.  So ISDS is in addition to, not instead of, national courts.  Similarly, ISDS has no effect on the  "The rule of law and the principle of equality before the law".

This issue comes up yet again in the sentence: "there will be nothing that limits for the parties the access to national courts or that will allow secret courts to have the final say in disputes between investors and States. "  But secret courts won't have the final say, they will just be a factor that may well cause governments to change their policies.  The rule of law will still be there, but it will be irrelevant when large sums of money are involved (and remember that they can be very large: the Russian government has been ordered to pay no less than $50 billion by an ISDS tribunal...)

So far the, Juncker has artfully managed to say nothing of any substance whatsoever.  But his passing shot is more significant:

I have asked Frans Timmermans, in his role as First Vice-President in charge of the Rule of Law and the Charter of Fundamental Rights, to advise me on the matter. There will be no investor-to-state dispute clause in TTIP if Frans does not agree with it too

That's a classic passing of the hot potato to someone else, and a delaying tactic to avoid making a decision now.  But it is a very clear insult to the incoming trade commissioner, Cecilia Malmström, who has effectively been told that she does not have the final say here.  The big question is: what exactly does Timmermans think of ISDS, and would he actually veto the chapter after months or years of negotiations?

In any case, the rumours continue to swirl that ISDS will come out before then.  Here's a report from last week on euractiv.com:

The European Commission may have changed its view over including investment arbitration in the EU-US trade agreement TTIP, a move that would be a wish-come-true for Economic Affairs Minister Sigmar Gabriel and others, who fear the measure could lead to companies influencing government policy. EurActiv Germany reports.

The European Commission is considering omitting much-disputed plans for an arbitration procedure, a safety net for investors, from the Transatlantic Trade and Investment Partnership (TTIP) currently under negotiation. An internal document from DG Trade addressed to EU Trade Commissioner Cecilia Malmström, revealed plans to strike the passage from the negotiating mandate.

As I've said before, I'll believe that when I see it - the UK will doubtless be working furiously behind the scenes to prevent ISDS coming out.  But there's certainly no question that ISDS is endangered, and that there is still a very real possibility it will be dropped.  Stay tuned....

Full list of previous TTIP Updates.

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TTIP Update XL

There's a rumour going around that ISDS may be coming out of TTIP:

Incoming Commission president Jean Claude Juncker is said to have decided to remove the controversial investor-to-state dispute settlement (ISDS) from TTIP, citing that it is “too late” to win on the issue, and to send a clear signal to EU citizens that he has “heard them" a new news report says

According to the Dutch journalist Caroline de Gruyter, writing for NRC Handelsblad, Trade Commissioner-elect Cecilia Malmström had threatened to resign over Juncker’s plans to exclude ISDS, but to date, this has not happened. The news sheds further light on the tug-of-war taking place within the Commission regarding investor rights in international trade agreements, as was demonstrated in Malmström's parliamentary hearing in September.

Well, that's certainly plausible, but I'd like to see this confirmed before I start rejoicing. And even if ISDS were taken out of TTIP, it's important to remember that the threat of corporations suing nations directly, over democratic developments that harm future corporate profits, will not have disappeared. That's because ISDS is most definitely still in the trade agreement between the EU and Canada, known as CETA. That means that any US company with ‘substantial business activities’ in Canada - that's all that the text of CETA requires - can sue the EU using the new agreement.

And just to make things a little harder, it was announced today that another major EU free trade agreement with ISDS has been concluded:

The European Union (EU) and Singapore have concluded the negotiations of the investment part of the EU-Singapore Free Trade Agreement (EUSFTA). This marks the successful conclusion of the negotiations of the entire EUSFTA, following the initialling of the other parts of the agreement in September 2013.

As that makes clear, it was precisely the chapter dealing with investment - and hence the highly-contronversial ISDS provisions - that was holding up the agreement with Singapore. We finally have that investment chapter (pdf). Two things are striking. First, that once again, any company that has "substantive business operations" in Singapore will be able to use the new agreement - known by the unlovely abbreviation "EUSFTA" - to sue European governments and the EU itself. The other thing that is noticeable is that zero notice has been taken of the 150,000 (mostly negative) submissions to the European Commission's consultation on ISDS.

This isn't the only example of the Commission showing its contempt for the European public and democracy. As I mentioned in a previous update, plans to organise a European Citizens' Initiative, a formal petition against both TTIP and CETA, were blocked by the European Commission, which flatly refused to allow people even this, largely symbolic, way of expressing their views on TTIP and CETA.

However, the organisers realised that they didn't actually need permission from Brussels to run this pan-European petition, and set up the site stop-ttip.org, where people were able to sign in a wide range of European languages. Even though this was only launched last week, it's been a stunning success: at the time of writing, over 637,000 signatures have been gathered (please do add your name if you haven't already.) That's two-thirds of the nominal million that would have been needed for the ECI, but the way things are going, I think the total will go well beyond that - a wonderful answer to the mean-spirited and cowardly actions of the European Commission.

Now, some will say that e-petitions really don't count, since it's so easy to gather names. There's some truth in that, except that people need to know about the e-petition before they can sign it, and so as minimum we can say that two-thirds of a million people now know enough about TTIP and CETA to dislike them. Moreover, the idea that the European public don't really care that deeply about these so-called trade agreements was given the lie by the astonishing "Decentralised Day of Action against TTIP, CETA and TISA", which gave rise to 450 events in 24 EU member states, involving many thousands of EU citizens. Lots of great pictures give some flavour of the depth of support.

However much the European Commission would like to ignore what the little people like you and me think, many among the European public clearly have no intention of meekly accepting what the Commission has stitched up in secrecy behind closed doors. Their anger is not least because of an insulting logic at play here: that you have no right to criticise what's being negotiated until you've seen the final text, because it's not yet finished; but then to be told, once the text is finalised, that you have no right to change anything, because it's finished (as with CETA.) They call that democracy?

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TTIP Update XXXIX

As previous updates - and many economists - have pointed out the huge economic gains claimed for TTIP are largely illusory.  The 119bn euros boost for the EU not only turns out to be under the most optimistic assumptions, clearly impossible to obtain now given the growing resistance to TTIP's de-regulation, but refers to 2027, and is the difference between an EU economy with TTIP and without.  That means the claimed 0.5% GDP boost is actually a ten-year cumulative figure, and amounts to the rather less impressive 0.05% extra GDP on average - in mathematical terms, indistinguishable from zero given the very approximate nature of the models used to make these predictions.

That's been quite widely known for a while.  But it turns out that there is another extraordinary fact buried within the main CEPR study, which was paid for the European Commission [.pdf]. I've discovered this thanks to an illuminating post about TTIP by Martin Whitlock, published in the UK edition of The Huffington Post. 

I'll cover his main point later on, but first I want to explore the extremely important piece of information that he mentions almost incidentally.  It goes some way to explaining the European Commission's obsession with cars: whenever they give an example of an industry that could benefit from TTIP, it's always cars.  And when asked about harmonisation of standards, it's again always about the different rules that apply to cars on each side of the Atlantic.  Here's what Whitlock writes:

cars form a big part of the E.U.'s case for TTIP. They account for 47% of the increase in exports and 41% of the increase in imports in the best case scenario, with well over three times as many vehicles braving the Atlantic storms in one direction or the other than at present.

When you think about it, that's staggering.  Indeed, so staggering that I checked what the CEPR study says to make sure those figures were correct.  For those of you following at home, it turns out that the relevant numbers are on pages 68 and 69 of the report.

In the most ambitious scenario, and in 2027, CEPR expects there to be a positive change in bilateral exports from the EU to US of 186,965 million euros (that's obviously a ridiculous precise figure - no model can provide six significant figures of accuracy about aspects of the world economy in 2027.)  Of that, fully 87,358 million euros are predicted to come from the motor industry.  The works out as 47%, as Whitlock writes.  Similarly, the table on page 69, CEPR expect there to be a positive change in bilateral exports from the US to EU of 159,098 million euros, which 65,903 million euros come from the motor industry, representing 41% of the total.

So that confirms Whitlock's figures.  But let's just think about what those CEPR predictions mean.  In rough terms, they say that in 2027, nearly 50% of TTIP's boost to transatlantic trade will come from one industry: cars.  Not only that, but CEPR further claims that the transatlantic exports for both the EU and the US industries will be boosted by roughly the same amount.  In other words, TTIP will lead to more cars being shipped from the EU to the US, but also for almost the same number of extra cars to be shipped back across from the US to the EU.

Since the number of cars travelling in each direction across the Atlantic more or less cancel out, this means that TTIP's net effect will be to cause vast quantities of fuel to have been burnt carrying out this vehicle swap.  It turns out, then, that 50% of TTIP's trade boost is pure environmental profligacy.  This is not an aspect of TTIP that the European Commission emphasises much, for some reason.

As I mentioned, this hugely important insight was only mentioned in passing by Whitlock, who goes on to analyse what are the consequences of moving roughly the same number of cars across the Atlantic in both directions.  Here's what he writes:

If the extra cost of transporting cars back and forth across the Atlantic is to be absorbed, and the vehicles are to offer better value to the consumer, it follows that the productive work contained in them will have to be acquired more cheaply. That could mean greater automation, or lower wages, or both. Either way, a smaller slice of the value of cars will go to the people who actually make them.

...

Trade which outsources production to low wage countries has the effect of importing poverty from the poor country to the rich one, since the loss of productive work in the rich country causes wages to fall. The danger of TTIP is that Europe and America will start exporting their significant levels of poverty to each other at a much faster rate than at present - a potentially disastrous chase to the bottom in which poverty increases inexorably as real wages continue to fall. Meanwhile, the capacity of governments to address the problem will be further eroded by the investor protections of ISDS and the tax breaks inevitably demanded by investor capital that can go wherever the return is greatest.

There are two important points here.  First, that it is inevitable that workers will suffer if CEPR's predictions for TTIP turn out to be true.  That's just simple economices: the whole "point" of TTIP from a business point of view is to allow cheaper labour to be used in this way; but, by definition, cheaper labour drives down wages.  Indeed, that is precisely what has happened with earlier trade agreements like NAFTA and KORUS.

The other point is that even if they wanted to, EU and US politicians wouldn't be able to pass new regulations to ensure that wages did not fall, say.  That's because such new rules would inevitably be called an "indirect expropriation of future profits" by the companies affected.  And if you think that is far-fetched, it's worth bearing in mind that ISDS has already been used in precisely this way: the French multinational Veolia is suing the Egyptian government for daring to raise the country's minimum monthly wage.  Preserving national sovereignty in the fields of wages and social justice is yet another very good reason for taking ISDS out of TTIP.

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