TTIP Update XXXVI

As I mentioned in my previous update, the TTIP negotiations are currently on hold, but that does not mean that all activity has stopped.  By an interesting coincidence, the other major EU trade agreement - that with Canada, generally known as CETA - seems to have been "concluded", although quite what that means is not yet clear.  For example, back in October 2013, the EU and Canada announced that they had "reached a political agreement on the key elements" - and yet negotiations have continued until now.  Even assuming that there are not more holdups, the process of ratification is extremely long, requiring all kinds of legal "scrubbing" and then approval by the various parts of the European Union and possibly national governments too (but again, that's not yet clear.)

In theory, we would have to wait until most of that was accomplished before we got to see the text of CETA, but as I noted last time, some public-spirited soul has leaked both the main text [.pdf] and the annexes. I've skimmed through the form, but not felt strong enough to tackle the latter.  I'm hoping that  experts will take a look at sections of interest and publish their thoughts in due course.

The first such analysis has already appeared, and it will probably be of particular interest to Open Enterprise readers.  It comes from the Canadian academic Michael Geist, and looks at a key area: copyright.  As he writes:

the starting point for copyright in CETA as reflected in 2009 leaked document [from Wikileaks] was typical of European demands in its trade agreements. It wanted Canada to extend the term of copyright to life of the author plus 70 years (Canada is currently at the international standard of life plus 50 years), adopt tough new rules for Internet provider liability, create criminal sanctions for some copyright infringement, implement new rights for broadcasters and visual artists, introduce strict digital lock rules with minimal exceptions, and beef up enforcement powers. In other words, it was looking for Canada to mirror its approach on copyright.

And yet the latest leak of the final CETA text shows that all the main European demands have been dropped.  Here's why Geist thinks that happened:

First, the domestic policy situation in both Canada and the EU surely had a significant impact as ACTA protests in Europe and consumer interest in copyright in Canada led to the elimination of the criminal provisions and the adoption of better-balanced, consumer-oriented rules.

The rejection of ACTA by the European Parliament in July 2012 was certainly a pivotal event that has had a major impact on the negotiations of subsequent agreements involving Europe.  Geist's other points - that Canada's copyright laws were compliant with international standards, that they are increasingly being seen as an alternative to the hard-line approach advocated by the EU in CETA, and that copyright was not a priority in CETA for Europe -  are doubtless true, but don't carry over to TTIP.  Importantly, the US will not be fighting any attempt by the EU to introduce stronger copyright rules in TTIP - on the contrary, we know from ACTA that in comparison, the EU is likely to be the moderating force here.

Putting those facts together, we can't therefore hope that TTIP will be as reasonable as CETA as far as copyright is concerned.  Indeed, as I noted in an earlier update, there is strong evidence that the European Commission is looking more than favourably on a "Christmas list" of demands from the copyright industries.

On a different note, the Canadian publication The Tyee has a useful analysis of some of the details revealed about investor-state dispute (ISDS) settlement in CETA.  It points out that ISDS is even more problematic than thought because of the existence of an important CETA commission, whose exact details have not been revealed:

Jan Spangenberg is an associate in Latham & Watkins' international arbitration practice group in Hamburg, Germany, which regularly represents states and investors in investment treaty arbitrations. He acknowledged the more narrow definition of "fair and equitable" treatment in CETA, but points out that the treaty includes a mechanism that could allow for a later modification of the provision by a CETA commission.

"It is unclear how this will work. As a result, significant uncertainty remains," Spangenberg said.

The commission, which does not yet exist, will have the final say in the definition of "fair and equitable" treatment. As of now, nobody can tell what it will decide.

That CETA commission would have another major impact on the implementation of ISDS:

The commission will also be in charge of the right of governments to appeal the decisions of arbitration courts. Here, the same problem arises: nobody knows who will be on that commission, when it will start and finish its work, and what it might decide. Governments will have to vote on CETA before they have the answers.

How appeals will work is especially worrisome for governments, because they are always the subject of lawsuits brought on by investors. Governments, on the contrary, can't sue investors in arbitration courts. This one-sidedness becomes more acute if appeals aren't possible at all or only in limited ways.

That there is no thorough judicial review of arbitrators' decisions worries experts like van Harten: "This is a fundamental problem and makes the adjudicative process non-judicial," he said.

This CETA commission is effectively a backdoor that will allow ISDS to be made even worse than it seems in the text of the treaty.  It's another manifestation of the lack of transparency that robs CETA and TTIP of much of their legitimacy.

In the face of that and many other worries around ISDS in CETA, the following statement from the S&D group in the European Parliament is good news:

The Commission should listen to the concerns voiced by the European Parliament and the S&D Group about the investor-state dispute settlement mechanism (ISDS) in the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada.

It will be up to the Parliament – the democratic conscience of EU trade policy – to decide whether or not to ratify CETA.

The CETA agreement, to be initialled at the EU-Canada summit at the end of September, would be a positive agreement and would bring opportunities for growth and jobs on both sides of the Atlantic. It covers various sectors ranging from agricultural and industrial goods to services, intellectual property rights, public procurement and sustainable development.

However, some EU member states, notably Germany, have raised serious concerns regarding the controversial ISDS clause in the agreement that allows multinational companies to bring international arbitration cases against governments. The S&D Group has always opposed the inclusion of this mechanism and we expressed our opposition in letters sent to EU Trade Commissioner De Gucht as far back as 2012. A resolution adopted by the European Parliament in 2011 on EU-Canada trade relations also states the Parliament's preference for traditional state-to-state dispute settlement and the use of local judicial remedies to address investment disputes.

The ISDS mechanism, where applied, has already shown how much power corporations have wielded in the name of profit. It is time the EU followed the Australian example and scrapped ISDS in the CETA and in the EU-US Transatlantic Trade and Investment Partnership (TTIP).

CETA has already been delayed for too long. A trade deal between the EU and Canada has the potential for great economic benefits and it should not be put in jeopardy for the sake of an unnecessary investment clause.

That's significant because putting together the S&D group with the Greens and others opposed to ISDS in the European Parliament brings the total number of MEPs very close to the majority needed to reject CETA - and maybe even TTIP - when it comes to the big vote.  Of course, much could happen between now and then, and it's quite possible that the S&D group will succumb to the promise of "concessions" on ISDS from the European Commission.  But the statement does at least indicate that getting CETA and TTIP through the European Parliament is not going to be easy.

Strangely, the European Commission seems to be going out of its way to make it even harder.  Here's what it announced last week:

The European Union today took an important step towards creating a comprehensive EU investment policy, with the publication of a Regulation setting out a new set of rules to manage disputes under the EU's investment agreements with its trading partners. The rules – set out in the Regulation on financial responsibility under future investor-to-state disputes – are a necessary component of a common EU investment policy.

'This Regulation,' said EU Trade Commissioner Karel De Gucht 'represents another building block in our efforts to develop a transparent, accountable and balanced investor-to state dispute settlement mechanism as part of EU trade and investment policy. '

The rules set up the EU's internal framework for managing future investor-state disputes. They define who is best placed to defend the EU’s and Member States’ interests in the event of any challenge under investor-to-state dispute (ISDS) in EU trade agreements and the Energy Charter Treaty. The rules also establish the principles for allocating any eventual costs or compensation. Member States will defend any challenges to their own measures and the EU will defend measures taken at EU level. In all cases, there will be close cooperation and transparency within the EU and the EU institutions.

Friends of the Earth Europe pointed out:

According to the European Commission, this regulation will come into force on 17 September. This is two months ahead of the intended evaluation of the European Commission's own public consultation on the investor-state dispute settlement mechanism being proposed in the current negotiations for the Trans-Atlantic Trade and Investment Partnership (TTIP).

Commenting on publication of this regulation, Paul de Clerk, trade campaigner at Friends of the Earth Europe said: "Finalising this regulation while the public consultation on investor-state dispute settlement in TTIP is still on-going is completely unacceptable and undemocratic. This not only undermines the 150,000 European citizens and stakeholders who have participated in the public consultation, but also brings into question the credibility of the European Commission about their willingness to listen to the voices of citizens on this important issue."

That's exactly right: this is yet another slap in the face for the European public, and confirms that the so-called "consultation" on ISDS in TTIP was simply window-dressing.  The Commission didn't even have the decency to wait until after the official analysis of those 150,000 submissions, but went straight ahead and published its new ISDS rules now, when it can't possibly take into account what all those people have said.  It is an act of pure contempt for the hundreds of millions or ordinary citizens that pay their not un-generous salaries.

It shows once more that the European Commission is hell-bent on steamrollering ISDS through, both in CETA and TTIP. Since it manifestly doesn't care a hoot about the growing rejection of ISDS by the public and hundreds of civil society organisations, it looks like we will once more have to pin our hopes on the European Parliament to stop this arrogant, high-handed behaviour by doing to CETA and TTIP what it did to ACTA: rejecting them.

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TTIP Update XXXV

According to the publication "Inside US Trade", which tends to be pretty good when it comes to sourcing its information, the next round of TTIP talks won't take place until the end of  September - obviously the negotiators felt they needed a holiday after all the excitement of the last year.  But even if TTIP news is thin on the ground, there have been a couple of big stories recently with major impacts for the negotiations.

The first concerns the following news:

Philip Morris International, the world's largest tobacco company, is prepared to sue the British government should it implement a law requiring plain packaging of cigarettes, a document seen by Reuters on Tuesday showed.

Another report claims that the tobacco company will be demanding exceptionally high "damages" - £11 billion.  Unfortunately, it doesn't provide any source for that figure, so I think it needs to be treated with caution.  However, we do know that Philip Morris (PMI) is also suing Uruguay over plain packs, and in that case is demanding $2 billion.  Given the greatly differently size of their respective economies - Uruguay's GDP is around $50 billion, while the UK's is about sixty times as great - it's quite plausible that PMI would want an even more outrageous figure.

The company has used ISDS provisions in an obscure treaty between Uruguay and Switzerland to sue the former.  Unfortunately the articles about the new threat to sue the UK don't say how PMI aims to do this; as far as I am aware, there aren't any treaties where it could invoke ISDS clauses in the same way, so presumably it will just be trying to do so under UK law.  That's interesting, because it is how the company also tried to sue Norway over its own moves to discourage smoking.  Here's what happened:

PMI tried similar bully tactics against Norway when it banned the display of tobacco products in 2010. Crucially the case was tried in an Oslo District Court because the treaty through which PMI sued Norway – the European Economic Area agreement – had no ISDS. Norway made a public health defence. Norway won.

Now imagine a situation in which either CETA or TTIP (or both) had ISDS chapters.  This would then allow PMI to sue the UK (and any other EU country) directly, using secret tribunals, rather than national courts.  Not only that, ISDS would allow any of the tens of thousands of US companies with subsidiaries in Europe to do the same.  The latest threat of PMI shows that the will is there, even if the easy means to do so are currently lacking.  Let's hope this action will cause the British government to wake up to the dangers of ISDS, just as the Germany government did when the Swedish company sued Germany in 2012 for €3.7 billion using ISDS clauses in the Energy Charter Treaty.

The other news is very different.  It comes from Professor Jane Kelsey of the Faculty of Law, University of Auckland, whom I mentioned last week for her insightful analysis of the leaked financial annex of TISA.  She's put together a hugely-important new site with the slightly odd name of "TPP: No Certification".  Here's what thte certification refers to:

The US withholds the final steps that are necessary to bring a trade and investment treaty into force until the other party has changed its relevant domestic laws and regulations to meet US expectations of its obligations under the agreement. In the past, US ‘expectations’ have gone beyond what is in the actual text, and even included matters that were rejected in negotiations.

US officials can define another country’s obligations; become directly involved in drafting that country’s relevant law and regulations; demand to review and approve proposed laws before they are presented to the other country’s legislature; and delay certification until the US is satisfied the new laws meet its requirements.

There are already moves to apply a new and extended version of certification to the Trans-Pacific Partnership Agreement (TPPA).

The [US] Bipartisan Trade Priorities Act of 2014, which seeks to establish Fast Track authority for the TPPA, contains Sec. 4(a)(2):

"CONSULTATIONS PRIOR TO ENTRY INTO FORCE – Prior to exchanging notes providing for the entry into force of a trade agreement, the United States Trade Representative shall consult closely and on a timely basis with Members of Congress and committees as specified in paragraph (1), and keep them fully apprised of the measures a trading partner has taken to comply with those provisions of the agreement that are to take effect on the date that the agreement enters into force."

Although the new site's main focus is on the TransPacific Partnership agreement (TPP), that paragraph from the proposed Bipartisan Trade Priorities Act makes it clear that the certification requirement is general: "Prior to exchanging notes providing for the entry into force of a trade agreement" - that is, *any* trade agreement.  As a result, the new site's analysis applies equally to TTIP.

There is a detailed Q&A [.pdf], which is well-worth reading (not least for the appalling saga of how the US insisted on vetting the news laws that Peru had to bring in), as well as a condensed explanation of what this is likely to mean in practice:

Certification is a legally binding obligation on the US President. The President withholds formal written notification to another party to a trade agreement that the US has satisfied its domestic approval processes until the US certifies the other party has altered that party’s domestic laws and policies to satisfy US expectations of what is needed to comply with the TPPA [and also TTIP].

The US officials transmit a list of the changes to the other country’s domestic laws and policies that the US government requires before it will allow the pact to go into force. US government officials then monitor compliance, and pressure the government of the trade partner country to alter its laws and policies until they satisfy the US view of the changes required.

Even if the US Congress passed the Trans-Pacific Partnership Agreement (TPPA) [or TTIP], the pact would only go into effect in relation to each party when the US certified that party had satisfied US notions of compliance. Certification therefore provides additional leverage to the US Congress and US industry to impose its interpretation on a party’s obligations under the TPPA [and TTIP].

That last part is particularly worrying.  For example, the European Commission has been adamant that certain things like chlorine-washed chicken meat or hormone beef will not be part of TTIP.  Let's assume that is true.  We know that some of the most powerful US farming groups have said that they will not support TTIP without Europe opening its doors and plates to chlorine-washed chicken and hormone beef, among other things.  So one possibility is that the European Commission might refuse to allow either *in the agreement* as signed, but that under the influence of US lobbyists, the US government would refuse to certify TTIP unless they were added *afterwards*. 

In this way, the European Commission would be able to say truthfully that it managed to keep out chlorine-washed chickens and hormone beef from TTIP's text, but that it now had "no choice" but to add it in (and maybe change the relevant EU laws), otherwise all that hard work on the agreement would be wasted, and all those supposed "benefits" lost.  And so, at the twelfth hour, chlorine chickens, hormone beef, GMOs, etc. etc. would be permitted in the EU so as to obtain final certification.

Of course, it may well not come to that.  The resistance to TTIP is growing, and it may be that the whole thing - not just ISDS - collapses as people become aware of the reality of what is being planned.  But what this valuable new site from Kelsey makes clear is that even if we manage to keep out the worst demands of the US side from the "final" text, it may not actually be final.  Assuming certification is required for TTIP as for TPP, it would give one last chance for the US to try to bully the EU into accepting its demands - and one last chance for the European Commission to capitulate.

Full list of previous TTIP Updates.

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TTIP Update XXXIV

The previous update detailed the massive rejection of ISDSin TTIP, even at the highest political levels in Europe.  That refusal to allow corporations to be placed above national law has now spread to the other major trade agreement that the European Commission is currently negotiating, the one with Canada, known as CETA.  Here's the bombshell that the German newspaper Süddeutsche Zeitung dropped over the weekend (original in German):

German EU diplomats confirmed in Brussels on Friday that the [German] federal government could not sign the agreement with Canada "as it is now negotiated." Although Germany was, in principle, ready to initial the agreement in September, the chapter on the legal protection of investors is however 'problematic' and currently not acceptable.

Now, it's important to emphasise that this is not saying that Germany will *not* sign CETA, as some have reported.  What it does indicate is that the current text is problematic.  That leaves open the possibility for modifications to be made that would make it acceptable.  But as we've noted before, Germany has already expressed its view that ISDS should not be in TTIP, and presumably feels the same way about CETA. 

Thus the new battle over CETA not only provides important hints about what will happen with TTIP, but will have a direct influence on it.  If CETA includes ISDS it will enable US companies to sue the EU through Canadian subsidiaries, thus making its presence or absence in TTIP somewhat moot.  Equally, if ISDS is dropped from CETA, it is likely to be dropped from TTIP.

That has become even more likely in the wake of this new statement by the S&D Group in the European Parliament:

Following reports in the press that the German government is reluctant to sign the EU-Canada Comprehensive Economic Trade Agreement (CETA) as it currently stands, the S&D Group calls for further efforts to conclude this agreement but invites the Commission to seriously consider withdrawing the investor-state dispute settlement clause from the final text. The inclusion of this clause seems to be the main controversial point in the CETA text for the German government.

That's significant, because the S&D Group is the second-largest in the European Parliament: TTIP will not be ratified there unless it's MEPs support it, and this is therefore a further signal that they won't support it if it includes an ISDS chapter.  The wisdom of that position was underlined just yesterday with the annoncement of the biggest award ever made by a tribunal of the kind that lie at the heart of ISDS:

In an historic arbitral award rendered on July 18, 2014, an Arbitral Tribunal sitting in The Hague under the auspices of the Permanent Court of Arbitration (PCA) held unanimously that the Russian Federation breached its international obligations under the Energy Charter Treaty (ECT) by destroying Yukos Oil Company and appropriating its assets. The Tribunal ordered the Russian Federation to pay damages in excess of USD 50 billion to our clients who were the majority shareholders of Yukos Oil Company.

Yes, you read that correctly: a tribunal of lawyers has decided that Russia ought to pay $50 billion damages (although whether it will is quite another matter.)  This is a useful reminder that there is literally no limit on the awards that these tribunals can make: the ISDS system is not just undemocratic, it is completely outside anyone's control - a recipe for disaster.

The other big TTIP news is the leak of one the key chapters, on "sanitary and phyto-sanitary measures" (SPS) - basically food safety and related areas.  Here's a summary of what it reveals:

The Institute for Agriculture and Trade Policy released the draft version of the central text of the TTIP chapter on sanitary and phyto-sanitary measures; this chapter imposes restrictions on government regulations related to food safety and animal and plant health. Among the many provisional threats to public health safeguards are:

A form of mutual recognition of the safety of imported food from Europe in the U.S. and vice versa that reduces standards to the lowest levels;

 An objective that food safety safeguards should generally be enforced in the least trade restrictive manner, rather than the manner that is most protective of public health and the environment; and

 A system of “exporter country certification” that would  sharply reduce food safety inspections at ports of entry.

That same Institute for Agriculture and Trade Policy (IATP) has also provided a detailed and illuminating analysis of what the dry text will mean in practice.  Here's the key section that describes the overall intent of the SPS chapter in TTIP:

trade agreement SPS language about food safety, animal health and plant health outlines the general terms for enabling trade while complying with “the importing Party’s appropriate level of protection.” So, for example, unless the European negotiators object to the use of Maximum Residue Level (MRL) of a specific pesticide on imported grain or a specific veterinary drug in the production of imported meat, without creating “unjustified barriers to trade” (Article 2, paragraph 2), the TTIP regards that product as having an “appropriate level of protection” to enable importation and consumption of the product. Determination of MRLs and other metrics of what is “appropriate” happens in a domestic regulatory process, in which, at least in the U.S., much of the relevant data is classified as Confidential Business Information.

This is the key change proposed by the TTIP draft: "mutual recognistion" would mean that US standards for pesticides or veterinary drugs would be regarded as acceptable in the EU, even when they are manifestly lower than those currently in place here.  As that paragraph also hints, the US regulatory process is pretty much a part of the US agricultural industry, which provides most of the data used for making regulatory decisions.

Not  only that, industry generally won't even provide the "scientific" data on which government decisions are based, since it is "Confidential Business Information."  Of course, when companies won't release data it's a clear sign that they have something to hide, as the experience with clinical trials data has shown.  When it comes to health and safety, open data is even more critical than elsewhere, but the US approach is diametrically opposed to this, with secrecy as the default.  This means that European efforts to make the regulatory process more open would be undermined by the US demand for business confidentiality for their standards, which would also apply in the EU.

In fact, the SPS chapter in the TTIP draft is even worse.  Not content with allowing food that meets US standards to be imported freely into Europe, it would stop checks being carried out on that produce as it enters the EU:

industry has long sought to replace verification of food safety management performance by port of entry inspection of products with export food facility certification, by governments or third parties, verified by audits of facilities. The terms of certification and auditing to verify SPS system equivalence are outlined in Article 12 of the draft. In Article 9, paragraph 1, industry, and particularly the Grocery Manufacturers Association, has gotten its wish to eliminate port of entry inspection and testing results as a factor in the SPS systems equivalence determination. According to the draft text, recognition of SPS systems as “equivalent” by TTIP Parties will occur “without a need for individual re-inspection [of products] or other additional guarantees.

There's an interesting consequence of removing the entry inspection:

The industry rationale for eliminating re-inspection and testing is not just to expedite more food trade more quickly. Detaching re-inspection and testing from SPS systems equivalence determination provides a layer of government verified and certified food safety management insulation from liability for exporting or importing contaminated products.

This means that the kind of food scandals we have seen recently - notably of horsemeat - would be much harder to investigate.  It would also remove incentives for US food companies to worry too much about the issue, since it would be much easier for them to escape any liability.

Finally, many in Europe will doubtless be worried by this aspect of the leadked SPS chapter:

“Prominent coverage of animal welfare” refers to “best endeavor” (we will try), not binding (“shall”) measures to prevent trade in livestock products from animals that have been abused. For example, Article 11, paragraph 1, states “The Parties recognize that animals are sentient beings. They undertake to respect trade conditions for live animals and animal products that are aimed to protect their welfare.” So, while this aspirational language is perhaps new in a trade agreement, it is designed to be unenforceable. There will be no requirements that Parties mandate compliance with animal welfare laws as a condition of being able to trade in animal agriculture products.

That means the opportunity to use TTIP to export Europe's higher animal protection laws to the US in order to mitigate some of the worst horrors of that country's "mega-farms" is being lost.  As a result, European farmers will be at big economic disadvantage compared to their US rivals, since they will be required to spend more money taking better care of their animals. 

This is likely to lead to European farms losing market share, as cheaper US food enters the EU, with no indication that it was produced in inhumane conditions, or that it contains pesticide levels that were previously unacceptable in the EU.  In the face of this unfair competition, the agricultural industry will inevitably push for EU standards for food safety and animal welfare to be lowered to those of the US in order to "level the playing field."  Moreover, whenever the US lowers them yet further - as it is currently doing for chickens - this will have a knock-on effect of pushing EU standards down too.  TTIP not only leads to a race to the bottom on food and health standards, it leads to that bottom being excavated to new depths.

As this indicates, the leak of the SPS chapter is extremely important, because it reveals in detail for the first time just how our food standards will decline, and that the repeated assurances from the European Commission that they will not, are worthless.  It's probably safe to assume that the same will prove to be true of the chapter dealing with intellectual monopolies like copyright and patents, which is likely to turn out to be ACTA 2.0.

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