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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