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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